Understanding your tax obligations and preparing taxes can be confusing and complicated. If returns are neglected or filed improperly, penalties and excess payments may be levied. This document gives an overview to help ensure you are filing and paying the appropriate taxes. Consult with a tax advisor or an accountant to help you understand your obligations and/or prepare your returns.
Corporation tax is a tax placed on the taxable profits of limited companies and other organizations such as clubs, societies, associations, and unincorporated entities
Companies and organisations based in the United Kingdom must pay a corporation tax on all taxable profits, no matter where (in the world) the profits come from. The current Corporation Tax rate for company profits is 19%, however, there are different rates for ‘ring fence’ profits of companies involved in oil rights or extraction in the UK or UK continental shelf.
Profits that arise from oil or gas extraction, or oil or gas rights, in the United Kingdom and the UK Continental Shelf (‘ring-fence profits’) are subject to tax in the United Kingdom in accordance with rates applicable in 2006, i.e. a full rate of 30% and a small profits rate of 19%. Such activities also attract 100% capital allowances on most capital expenditure. A supplementary tax charge of 10% applies to ‘adjusted’ ring fence profits in addition to normal corporation tax.
When a corporation files a tax return, it work out:
- profit or loss for Corporation Tax (this is different from the profit or loss shown in your annual accounts)
- Corporation Tax bill
It is the accountant’s job to prepare and file the tax return.
If your company or organization pays too much Corporation Tax, HM Revenue and Customs (HMRC) will repay what you’ve overpaid and may also pay you interest on it.
HMRC’s interest rate is 0.5%.
The first thing you must do is register your company with HM Revenue & Customs (HMRC), using its official forms, so it knows you are liable for corporation tax. If your company is liable for corporation tax, you must calculate how much profit your company makes for each accounting period and how much corporation tax is payable on those profits.
This information must be reported to HMRC on a corporation tax return form and accounts and tax computations must be submitted to HMRC in support of the return.
If your businesses is liable for corporation tax, you must submit a Company Tax Return to HMRC at the end of your accounting period. Corporation tax can be a complex tax to do, not submitting your tax return on time can result in considerable penalties and interest being accrued by HMRC. This is why it’s so important to put arrangements in place early on to ensure everything is completed on time.
This is why you could appoint an accountant to handle all of your Corporation Tax obligations according to the recognised accounting standards. HMRC refers to accountants who deal with Corporation Tax as ‘Corporation Tax agents’. Accountants acting as Corporation Tax agents stand as middlemen, working on behalf of companies to communicate all necessary tax matters to HMRC. An accountant will be able to:
When you send a Company Tax Return you need to calculate:
- How much profit or loss you made in regards to Corporation Tax
- How much you need to pay for your Corporation Tax bill
- Save time. In most cases it will take you a lot longer to complete your own tax return than it would for an advisor. This time could be better spent running your business!
- Claiming everything you’re entitled to claim. It is a very rare occasion that we take on a new client and are not able to find areas to reduce the tax owed. This is usually in the form of under declared expenses. Most business owners are not aware of all the different types of expenditure that can be claimed and how best to claim them, which is where we come in!
- Another huge benefit to being organised with your tax affairs is that you will know how much tax is due in advance with a good amount of time to pay your balance to HMRC.
Even if you have no Corporation Tax to pay, you must still submit a Company Tax Return. Sole traders and partnerships do not have to subsmit Company Tax Returns as they are eligible for Self Assessment instead.