Corporate Taxation in the UK
Accounting for VAT on services between the UK and EU member states from 1 January 2021
Corporation tax is a financial obligation imposed by the government on companies operating in the UK and foreign companies with UK-based offices. This tax is based on their profits, which represent the income a company generates, minus the expenses incurred, such as staffing and raw materials costs.
For sole traders and partnerships, the tax structure differs. They are not subject to corporation tax but instead need to address income tax, which applies to business profits, and capital gains tax, which is relevant when they gain from selling assets.
It is crucial to recognize that as a business entity, you are responsible for ensuring that the appropriate amount of tax is paid. To meet this obligation, it’s necessary to maintain accurate company accounts and submit a Company Tax Return by the stipulated deadline.
UK Corporate Tax Rates
The rate of corporation tax your company pays is contingent upon the applicable rates during its specific accounting period. These rates apply to the income generated during that period after accounting for overheads and expenditures. It’s important to note that corporation tax rates may fluctuate, necessitating a thorough understanding of the current rate for your accounting period.
Presently, the corporation tax rates are categorized as follows:
- Profits exceeding £250,000 incur the main rate of 25%.
- Profits totaling £50,000 or less are subject to the small profits rate of 19%.
- If your profits fall between £50,000 and £250,000, you may be eligible for marginal relief.
Application for Corporation Tax
Application for corporation tax is imperative upon establishing your limited company. This application should be completed within three months of commencing business activities. It’s noteworthy that the term ‘trading’ encompasses various business actions, from purchasing stock to advertising, even if it does not result in immediate revenue. Thus, early application for corporation tax is advisable to avoid potential penalties.
Corporation Tax Reliefs
Additionally, your company might qualify for certain corporation tax reliefs, such as those related to research and development expenses, profit generated from patents, production within specific creative sectors (e.g., television, film, theater, and video games), losses incurred by your business, and disincorporation if your company transitions to a sole trader or partnership structure and needs to transfer assets to shareholders.
Deadline for corporation tax payment
The deadline for corporation tax payment varies depending on your taxable profits. For taxable profits of £1.5 million or less, payment must be made within nine months and one day from the end of your accounting period. If your taxable profits exceed this threshold, you’ll need to make payments in instalments. Further details can be obtained from the HMRC website.
It’s vital to highlight that the deadline for corporation tax payment occurs prior to the deadline for filing your company tax return, which is set at 12 months after the conclusion of your accounting period. To ensure a seamless process, it’s advisable to prepare your company tax return well in advance of the deadline, enabling you to determine the precise amount of corporation tax owed.
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