Corporation Tax is a tax charged to all limited companies (Ltd and Plc) each company year (also known as accounting period). The tax is charged on total annual profits recorded for that accounting period. For most limited companies, the taxes will be calculated by the accountant. However, it’s still important for the directors to know what’s going on and how everything works in this regard.
If you are thinking of setting up a limited company in the UK, below is a full break down of Corporation Tax, including how it works, who pays it, and other important facts to note.
Who Pays Corporation Tax?
Not everyone or every business will be required to pay Corporation Tax in the UK, only companies that are registered as a limited company will be required to do so. Sole traders and partners in partnerships will pay Income Tax on their profits through the Self Assessment regime. There are also other organizations that might be required to pay Corporation Tax.
- Trade associations
- Members club or societies.
- Groups of people running a business but not entirely as partnerships
- Housing associations
Filing for Corporation Tax Returns
HMRC requires that all companies complete a Corporation Tax return form at the end of each year. The form is called Form CT600 and can be filed online with HMRC. Normally, the returns are filed by an authorized accountant working for the limited company, but as the company’s director you are responsible for the accuracy of the return. This means that it is advisable for you to take a look at the returns and make sure that everything is correct before it is filed, indeed most accountants will insist on this. The CT600 form must contain the following details:
- The registration number of your company
- The total profit for the period
- The name of your company
- The tax calculations done
- The tax reference number
- Any details of allowances paid
- Your address or registered office
Corporation Tax Rates
In the past, the UK had two of rates Corporation Tax. The first one was called the small profit rate and the second one was the main rate. The small profit rate was applied to companies with gross profits of less than £300,000. Companies that were making above £1.5 million in gross revenues were charged the main rate. But this has changed since 2016; the small profit rate and the main rate were aligned and now there is only one single UK corporate tax.
At the moment, the Corporation Tax rate in the UK stands at 19%. The government has made it clear that it plans to cut the Corporation Tax rate gradually moving forward. The aim is to reduce the rate to below 15% in a move that the government hopes will create a competitive business climate for entrepreneurs.
Understanding Corporation Tax and how it works is essential for all directors running companies in the UK. The simple guide above should help.