Understanding your Corporation Tax obligations
If you manage or run an incorporated business such as a limited company, you are required to register for Corporation Tax which means you need to know your obligations and ensure you are paying your bill on time.
Corporation Tax is a form of business tax that companies pay on their taxable trading profits.
The amount of Corporation Tax you pay is dependent on the profits and you must register with HM Revenue and Customs (HMRC) within three months of trading.
It’s important you understand your Corporation Tax obligations to avoid facing any potential sanctions or fines which could have a detrimental effect on your company.
What are the current Corporation Tax rates?
As noted above, the amount of Corporation Tax you pay is dependent on the level of profits your company generates.
Currently, incorporated businesses generating under £50,000 in profit are required to pay a Corporation Tax bill at 19 per cent, known as the small profits rate. For companies making over £250,000 in profit, they are taxed at the main rate of 25 per cent.
It’s slightly more complex for companies generating profit between the two rate bands. These companies can claim Marginal Relief, which provides a gradual increase between the small profit and the main rate.
Claiming Marginal Relief means you can reduce your rate from the main 25 per cent, but once your profits exceed the £250,000 threshold, you will be pushed into the main Corporation Tax band.
What taxable profit falls into the Corporation Tax bracket?
All taxable profits generated by your company are subject to Corporation Tax.
This includes profits from trading, such as selling goods, products and services. Your company is also subject to Corporation Tax on any assets sold, such as property, machinery and company shares.
You also face a Corporation Tax bill on any investments that generate profit. This means you must ensure your company is registered and file your returns correctly.
Any costs associated with running your company, such as staff wages, renting office space, buying supplies and equipment, are exempt from Corporation Tax.
What are your legal obligations?
By law, you are legally required to register your incorporated business with HMRC, and this must be done within three months of your company starting to trade or generate income.
You will need to make an HMRC business tax account and provide as much information to HMRC as possible, including your company’s 10-digit Unique Taxpayer Reference, your company registration number, main activities, and the date on which your company became liable for Corporation Tax.
By doing this, HMRC can then determine your company’s 12-month accounting period. From here, they can set your filing tax return and Corporation Tax deadlines.
You must file a Company Tax return every year, regardless of whether your business is operating at a loss or does not have any tax to pay and include all annual account details when submitting your tax return
Any Corporation Tax bill must be paid no later than nine months and one day after your company’s most recent accounting period.
Is support available for company owners?
You need to understand your Corporation Tax obligations, as failing to follow the regulations in place can land you and your business in serious hot water and at risk of fines and sanctions.
If you do need support with any Corporation Tax matters, our expert team can advise and support you. We can answer your queries, look at your current payments and ensure you understand what is required legally.
For all Corporation Tax concerns, contact our team today.
