Corporation Tax: What you need to know

Corporation Tax is a type of business tax that certain companies are required to pay.

Companies are charged Corporation Tax on their taxable profits from activities such as selling goods and investments.

Corporation Tax applies to incorporated businesses such as limited companies. If you do own an incorporated business, you must register with HM Revenue and Customs (HMRC) and ensure you know when you need to pay a tax bill.

The amount of Corporation Tax your company pays is based on the amount of profit made, so it’s crucial you know your deadlines and the Corporation Tax bracket you are likely to fall into.

How are companies charged Corporation Tax?

Your Corporation Tax bill is worked out based on your incorporated business’s profits. There are two Corporation Tax bands in the UK, the small profits rate and the main rate.

The small profits rate applies to any incorporated business that has generated a profit of under £50,000. This profit is then taxed at the small profits rate, which is 19 per cent.

The main Corporation Tax rate in the UK is 25 per cent and this applies to incorporated businesses that have generated over £250,000 in profit.

Corporation Tax works slightly differently for companies that have profit figures between the two bands. These companies have their Corporation Tax bill worked out through Marginal Relief, which provides a gradual increase between the small profit and the main rate.

Companies claiming Marginal Relief will have a reduced Corporation Tax that sits between the two bands. However, should the company pass the £250,000 profit threshold, your company will then be charged at the main Corporation Tax rate.

How do HMRC calculate Corporation Tax bills?

HMRC will analyse all the taxable profit made from your company and charge at whichever Corporation Tax band you fall into.

They will look at the profits made from trading, so what your business does, whether it’s selling products and goods or a service. In addition to this, you will face a potential Corporation Tax bill on profit made from the sale of assets.

This includes selling company property, company shares or any machinery. Any profit from company investments is also subject to Corporation Tax.

However, Corporation Tax does not apply to a company’s running costs, so expenditure on things such as staff wages, renting office space and buying supplies is exempt.

What am I required to do to meet the Corporation Tax regulations?

The first step is registering your company with HMRC and ensuring this is done within three months of your company beginning to trade and generate income.

HMRC will ask you to confirm several pieces of information once you have created an HMRC business tax account, so they can work out your Corporation Tax deadlines and clarify your 12-month accounting period.

This includes your company’s 10-digit Unique Taxpayer Reference, the company’s registration number, its main activities, and the official date your company became eligible for Corporation Tax.

Whether your company has made any profit or not or has no tax to pay, you still need to file a Company Tax return with HMRC every year.

You need to pay your Corporation Tax bill no later than nine months and one day after your company’s most recent accounting period, so that there isn’t any confusion as to when you need to file your tax return.

Do you know your Corporation Tax obligations?

It’s very important that you have followed the steps above and know your Corporation Tax deadlines and legal requirements.

You run the risk of damaging your business if you fail to follow the regulations in place. You could face fines and sanctions from HMRC, as well as reputational damage that can often be difficult to recover from.

Help and support are available if you want to learn more about Corporation Tax. Our team are experts in all UK tax rates, including Corporation Tax, offering tailored advice so you can confidently manage any challenges.

For support with any Corporation Tax matters, speak with our team.