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Plain English guide to corporation tax

Plain English guide to corporation tax

Getting to grips with the basics of accounting, financial management and business strategy can be a challenge. To make things easier, here is our plain english guide to corporation tax, one of the key business taxes you’ll need to understand as a limited company.

What is corporation tax?

Corporation tax (CT) is a direct business tax that’s levied on your company’s profits.

The CT you pay is based on the company's taxable profits. This will include revenue from your business activities, investments and capital gains.

As an owner/director, one of your key responsibilities is to make sure the company complies with all CT legislation that’s relevant for your business and pays any tax that’s due.

Here’s a quick overview of the current rates of CT in the UK?:

  • For annual profits under £50,000, you’ll pay CT at the lower rate of 19%

  • For annual profits over £250,000, you’ll pay CT at the standard rate of 25%

  • For annual profits between £50,000 and £250,000, you’ll pay CT at the standard rate, but with Marginal Relief applied at the rate that’s relevant to your type of business. Where there are associated companies, these thresholds are shared equally between them.

How does corporation tax affect your business?

Paying CT is a key obligation for most incorporated businesses. But what are the key responsibilities to have on your CT to-do list?

As a company, you’ll need to:

  • Register with HM Revenue and Customs (HMRC) – your company must contact HMRC to register for CT within three months of starting trading as a business.

  • Keep accurate financial records – financial records are essential. You’ll need to keep records of all income, expenses and transactions related to your business activities.

  • Calculate your taxable profits – at year-end, you must calculate the company’s taxable profits by deducting any allowable expenses and reliefs from your total income.

  • Prepare and submit a CT return – every year, the company must prepare and submit a corporation tax return (CT600) to HMRC. This return gives details of the company’s financial activities and tax calculations for the tax year in question.

  • Pay corporation tax – most companies must pay the CT they owe to HMRC within nine months and one day after the end of the accounting period. Companies with an annual profit exceeding £1.5 million have a faster payment schedule, with quarterly payments starting 6 months and 13 days from the beginning of the accounting period.

  • File accounts with Companies House – your company must file its statutory annual accounts with Companies House. These accounts will include financial information related to CT and will be available as public records.

  • Comply with all relevant deadlines – your company must meet the filing and payment deadlines set by HMRC. If you don’t, this could lead to penalties and interest charges.

  • Seek professional advice – the best way to make sure you’re ticking all the correct CT compliance boxes is to work closely with a qualified accountant or tax adviser.

How can our firm help you with your corporation tax?

Keeping on top of your corporation tax responsibilities can be a challenge. As your adviser, we’ll work with you to manage your corporation tax and keep everything as tax efficient as possible.

We’ll help you keep accurate records, file your returns on time and claim all available reliefs. It’s the best way to minimise your tax bill and stay 100% compliant.

If you’d like to know more about the impact of corporation tax, we’ll be happy to explain.

Get in touch to chat about your CT responsibilities.