The Ultimate Guide to Corporate Tax in The UK
What Is Corporate Tax?
The corporate tax in the UK is a corporation tax levied on the profits of UK resident companies and on the profits of overseas registered entities with a permanent establishment in the UK. It is based on a company's annual profit. All profits are taxable, but some specific expenses can be deducted and there are allowances you can use to reduce your tax liability.
Corporation tax applies specifically to the following limited companies:
Business profits - Income from business activity
Selling assets - such as land, real estate, stocks, and machinery for taxable gain
How Much is UK Corporation Tax?
Your business pays 19% corporation tax on its profits, which is the money you make during that accounting period. The corporate tax rate can change from time to time, so you need to make sure that you are paying the correct rate that applies to your accounting period. The corporate income tax rate is 19% for the fiscal year beginning April 1, 2021, and will remain at that rate for the fiscal year beginning April 1, 2022. You can check your fiscal year information on government websites.
Who Pays Corporation Tax?
Public and private companies generally have to pay corporation tax on their profits. Foundations and associations may also be required to file corporate tax returns.
Some legal entities such as financial investment institutions do not pay corporate tax in the Uk. Certain corporate entities investing in common may also be exempt from corporation tax.
When is Corporation Tax Due?
This is where corporation tax gets tricky, as the payment deadline is different from other taxes and depends on your accounting cycle:
● You must pay corporation tax before filing your tax return
● The payment deadline is nine months and one day after the end of your accounting period for your previous financial year - so if your accounting period ends on March 31, your corporation tax deadline is January 1
● If you have just started your small business, you may have two corporation tax reporting periods, as your reporting period cannot exceed 12 months. For example, if you start your business in January, your first billing cycle may last until March 31, when you start a full 12-month billing cycle.
How to Pay Corporate Tax In the UK?
HMRC offers several ways of paying corporation tax and it's worth bearing in mind the deadline by which you have to pay. If you miss a deadline, you will have to pay interest on the unpaid amount. However, if you pay your corporation tax in advance, HMRC will pay interest to your company.
Corporation tax can be paid electronically and at the post office or your bank, depending on how quickly you want the payment processed with HMRC. In any case, you must provide your 17-digit corporate tax number for the accounting period for which you are paying.
Same day corporate tax payments - you need to pay by CHAPS, online or by phone (faster payments) - most major banks with online business accounts support same day online transfers, even to HMRC. You have to pay either HMRC Cumbernauld or HMRC Shipley - your corporation tax payslip will tell you which. If in doubt, pay HMRC Cumbernauld.
Corporate Tax Payments in Three Business Days – BACS bank transfers, direct debits, or online payments with your credit or debit card usually take around three business days. The same duration applies if you pay at the post office, a bank, or building society. If you are paying at the bank, post office, or building society you will need to bring the corporation tax payslip sent by HMRC.
Corporation tax payments in five working days - If you need to set up a direct debit for this payment and future corporation tax payments, it will take five days to process the payment to HMRC.
Can Corporation Tax be Paid In Installments?
Companies with a profit of more than £1.5m have to pay their corporation tax in installments so the process is different. And even if your company is making a loss and you don't owe corporation tax, you still have to report it to HMRC.
Do Sole Traders Pay Corporate Tax?
no, sole traders don’t pay Corporation Tax. Neither do business partnerships. Corporation tax is due on profits from:
● Limited Liability Companies
● Foreign companies with offices or branches in the UK
● Member associations, business associations, housing cooperatives, and cooperatives.
How to Reduce Corporate Tax?
Here are our top tips for reducing corporation tax:
Never Miss a Deadline
Businesses generally have two years from the end of an accounting period to claim certain tax reliefs, such as Businesses must ensure that they claim their full entitlement to such relief before it is too late.
Business owners should try to use their personal allowance efficiently by receiving a tax-efficient combination of salary and dividends from the business.
Invest in Plant & Machinery
Businesses are eligible for the Annual Investment Allowance (AIA), which allows a business to claim an immediate tax reduction on the purchase of certain business assets up to a certain ceiling. The AIA was increased to £1m on January 1, 2019, which means companies investing in qualifying items can deduct a significant portion of the investment from their profits.
Don't Forget to Claim All Business Expenses
It may seem obvious, but don't overlook expenses from your accounting records. We often find that the directors themselves incur expenses on behalf of the company but do not recover them in the accounting records.
Can you claim a tax reduction for the Patent Box?
Does your company profit from patented inventions? You can try to claim tax breaks under the Patent Box and pay an effective corporate tax rate of 10% on those profits.
Do Charities Pay Corporate Tax?
Most charitable income and profits are exempt from income and corporation tax, provided the money is used solely for charitable purposes. This does not mean that charities never pay taxes. If your charity has taxable (non-exempt) income or gains, you must notify HMRC and complete a tax return.
How Can We Help You?
Corporate tax in the UK is easy if your financial matters are simple and you know what you are doing. However, this can take some time and you may be paying more tax than necessary if you are unsure of the costs and benefits you can claim. Pro Tax Accountants has a team of professionals ready to help you with your corporate tax. Feel free to contact us now!