Corporation Tax In UK: A Step-By-Step Guide

Corporation Tax is obligatory for all businesses operating in the UK. Suppose your limited company in the United Kingdom makes a small profit. In that case, you must still pay corporation tax on that income. It’s one of the most crucial taxes you’ll have to pay, although it may be frustrating for many business owners.

Also, the procedure is rarely easy to navigate because it is subject to frequent revisions and reforms. Using this article, you can better understand taxation, comply with the guidelines set forth by HMRC, and avoid being surprised by future deadlines.

What Exactly Is Corporation Tax?

All registered corporations at Companies House are subject to corporation tax on their taxable profits. Taxable profit is the amount of profit that remains after subtracting tax-deductible expenses and reliefs. A variety of taxable profits and chargeable gains, such as the following, are used to calculate corporation tax:

  • Trading profits – the income generated by the company’s trading activity after deducting allowable expenses.
  • Capital gains – the chargeable profit or gain realized upon selling a firm asset, such as real estate or building.
  • Any other income- such as money earned through leasing property or buildings or interest earned on company savings.

What Are The Corporation Tax Rates?

Corporation tax is currently levied at a flat rate of 19%. This rate has remained constant since April 2016, but this is set to change next year when a tiered system is implemented. The headline rate of corporation tax will be 25% beginning April 1, 2023. Small enterprises will continue to pay the lower 19% rate if their profits are less than £50,000. Businesses with profits of £50,000 to £250,000 will face a tapering rate of 19% and 25%. Therefore, beginning next April, only companies with profits over £250,000 will be subject to the full 25% tax rate.

How Do I Register For The Corporation Tax?

If you have just registered a new company with Companies House, you must now register for corporation tax. You will be required to do this within three months of conducting business activities; failing so may result in a penalty fine being imposed on you. This could happen when you hire someone, advertise, or rent space, not just when you buy and sell goods and services.

To complete the registration process, go to the Gov.UK website and either sign in to an existing business account or create a new one. You will need to input a Unique Taxpayer Reference (UTR) and a ten-digit number and create a username and password before proceeding.

The next step is to submit your information to HMRC by following the guidelines provided. You should have the following details available before filling out this form:

  • Government Gateway user ID & password for your company
  • The 10-digit Unique Taxpayer Reference number for your company (UTR)
  • The name of your company
  • The primary location of your company
  • The registration number of your company
  • The names and residences of the board members
  • The date your company began operations.
  • The date your annual financial statements are prepared.

After entering your company’s information, you will be required to submit a Company Tax return.

What Is A Company Tax Return: How Do I File One?

Corporation tax return also referred to as a CT600 form, is what businesses submit to HMRC to report their corporation tax figures. If you are uncertain of this time, you can determine it through your HMRC business tax account.

In most circumstances, you’ll have to fill out the form digitally. However, if you’re filing your CT600 form in Welsh or can’t find it online, you can request a hard copy. If you want to use a paper form, you must complete a WT1 form explaining why you did so.

Although there are 11 pages in the CT600, many of the questions won’t be relevant to your company. On this form, you’ll be asked questions about the following:

  • basic information about your organization
  • your accounting periods
  • The turnover of your business
  • The income of your business
  • Deductions and exemptions for your business
  • You’re calculating your company tax
  • Calculate your corporation’s tax

Filling out your CT600 form can be a time-consuming and challenging task to become more familiar with corporation tax. However, if you carefully follow the directions and consult helpful resources for advice, the process can be made as smooth as possible. If financial computations are beyond your area of expertise, you can always employ outside accountants to file them on your behalf.

Are There Any Exemptions Or Reductions Available On The Corporation Tax?

Certainly, there are. Remember that you only pay tax on profit (not on revenue). If you incur losses in one year, they can be carried forward to offset future gains. There are always various options available for dealing with a corporation’s tax liability. For instance, companies’ donations to pension plans are exempt from corporate tax.

If you need more information about tax relief options, you could avail read our in-depth guide on Corporation Tax Relief and Penalties.

What Are The Procedures For Paying My Bill?

After you have submitted your tax return, start thinking about how you will pay the amount owed. There are numerous ways for your company to pay its bills, so don’t be concerned if your small-to-medium-sized organization (SME) does not currently accept online payments.

You have the following options for submitting your payment to HMRC:

  • Online banking
  • Direct debit
  • Telephone Banking
  • Bankers Automated Clearing System (BACS)
  • Clearing House Automated Payment System (CHAPS)

What Happens If The Payment Is Late?

Every owner of a company has the intention of being prompt with their payments. However, occasionally unforeseen situations prevent them from submitting their tax forms and payments on time. Here is what is likely to occur if you are in this situation.

Late Tax Returns

If you file your tax returns after the deadline, you may be fined:

  • £100 for one day late
  • extra £100 If not filed return within three months
  • add a 10% penalty on top of your unpaid tax payment after six months
  • impose an additional 10% penalty after 12 months

Late Tax Payments

If you fail to meet a payment deadline, HMRC will charge you interest on the amount you owe. You may also be liable to a penalty or surcharge.

If your payment remains unpaid for an extended period of time, HMRC has the authority to take action to collect any funds. This could entail them collecting owed payments through your wages, utilizing debt collection agencies, selling items you own, seizing money from your bank or business society accounts, suing you, and, in extreme situations, closing down your firm.

Final Thoughts

It’s always best to be as organized as possible regarding corporation tax to avoid getting caught unprepared. You should have all the necessary information to file your tax return and make payments on time if you adhere to the abovementioned instructions.

A competent tax accountant in Bolton will walk you through all of the reliefs and allowances that apply to you and handle much of the administration and compliance required to comply with corporation tax requirements.

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