For Small & Medium Sized Business Owners: An Essential Guide to Corporation Tax in Less Than 5 Minutes

In this article we’ll cover off some of the essential information small and medium sized business owners should be aware of in respect of corporation tax. 

1)    Corporation tax applies to Ltd companies

UK corporation tax applies to the taxable profits of UK Ltd companies. Note, this therefore excludes sole traders and partnerships.

2)    How is corporation tax calculated?

The normal rate of corporation tax is currently calculated as 19% of a company’s taxable profits. 

Note, there is due to be an increase to the current rate from 1st April 2023 with a new rate of 25% applying to companies with profits over £250,000.  

Businesses making taxable profits of £50,000 or less will continue to be taxed at 19%, with some tapered relief provided to those making profits between £50,001 and £250,000.

Note when we say “taxable” this is effectively the profit shown in the accounts plus or minus any deductions to arrive at what is deemed to be “taxable profits”.

We must make these adjustments to arrive at the taxable profit figure because HMRC has its own rules regarding the treatment of specific items.

3)    When is my corporation tax due to be paid?

The deadline for paying corporation tax is 9 months and 1 day following the end of the accounting period to which the tax relates to.

So, for example, for a company with a year-end date of 31st December 2020, the corporation tax for that period should be paid by no later than the 1st of September 2021.

4)    How do I let HMRC know what corporation tax I’m due to pay?

A corporation tax return is prepared and lodged each year. 

This type of tax return is called a “CT600”, and it has a due date of 12 months after the end of the accounting period to which it relates.

So, using an example year end date of 31st of December 2020, the corporation tax return (CT600) would need to be lodged by the 31st of December 2021.

Note, the return is lodged after corporation tax liable is paid to HMRC (see point 3 above).

When lodging the CT600, a set of accounts are also sent with the return. 

These accounts are in a special HMRC format and so provide a bit more detail than when making lodgments with Companies House.

5)    What if I am late in lodging my corporation tax return?

At the time of writing this article, if late lodging a corporation tax return, the penalties imposed by HMRC are as below. 

Note – if a “reasonable excuse” can be given for why a return is late, any penalty imposed may be appealed.

1 day late:                   £100 penalty

3 months late:             Another £100

6 months late:             HMRC will estimate your corporation tax payable and add a penalty of 10% of the unpaid tax

12 months late:          Another 10% of unpaid tax

If corporation tax returns are late 3 times one after another, penalties are increased from £100 to £500.

If you’d like some help with managing your corporation tax affairs including legally minimizing your bill, contact us today at help@northhillfinance.com or call us on 033 3303 0988.