TAX BASICS

Corporation Tax: How to pay and everything you need to know.

You pay corporation tax when your company or association makes money from trading, earnings, investments, and other taxable gains. Such as the sale of company assets, including land and property, equipment and machinery, and company shares. All limited firms in the United Kingdom are subject to corporation tax.

What is the current corporation tax rate?

The government announced in Budget 2020 that the principal Corporation Tax rate would continue at 19 per cent for the years beginning April 1, 2020, and 2021. But this does not apply to ring-fence companies. Ring fence firms are simply businesses that profit from the production of oil, ownership of oil rights in the United Kingdom or on the UK continental shelf.

Corporation Tax: When to Pay

The due date for your bill is nine months and one day after the end of your fiscal period. For example, if your accounting period ended on March 31, 2019. You’ll need to pay your corporation tax by January 1, 2020. If your profits fall below £1.5 million each year, you will have to pay once a year. Businesses having profits in excess of £1.5 million are eligible to make payments in instalments.

How to calculate Corporation Tax?

  • In order to figure out how much Corporation Tax your firm will have to pay. You must first determine how much profit your company must pay taxes on. This figure is the company’s taxable profits.
  • To calculate your taxable profits, you must first determine your company’s pre-tax profit figure (also known as ‘profit before tax’). This is available in your company’s financial statements for the relevant financial year. 
  • After that, you add back any depreciation expenses that you’ve included in your financial statements.
  • Take a deduction for your capital allowances (they take the place of depreciation charges)
  • Add in any other relevant income or chargeable gains that may have occurred.
  • Deduct any other applicable deductions, reliefs, allowances, or losses that are applicable.
  • To calculate the gross Corporation Tax you have to pay, calculate your tax by the applicable tax rate.
  • You can then deduct any applicable tax credits.
  • Deduct any income tax already deducted from your company’s interest income. For example, the tax deducted by your bank before it paid you interest.

How to Register for Corporation Tax

Registering your limited company with the HMRC should be one of the first things you do after forming your business. You can do this through the gov.uk website. You must register within three months of beginning to trade. Which includes the following activities: buying, selling, promoting, renting a property, and employing someone. Registration is free.

In order to register for Corporation Tax, you must first log into your business tax account.

To register, simply follow the instructions in your account.

To sign in, you’ll need the user ID and password for your company’s Government Gateway account. If you do not have a user ID, you can create one when you first log in to the website.

In addition, you’ll need your company’s 10-digit Unique Taxpayer Reference number (UTR). HMRC will send it to your company address within 14 days of your registration. It contains important information about your business (incorporated).

You could request one online if you did not receive your company’s UTR after registering your business.

What you need to tell HMRC

When registering, you’ll need to provide the following information to HMRC: your company’s registration number. 

The date you originally opened your doors for business (your company’s first accounting period will begin on this day).

The deadline for completing your yearly accounts.

Corporation Tax Payment Online: How to Pay

Every year, you must file a corporation tax return (CT600), as required by law. In addition, you must file your company’s financial statements with HMRC and Companies House. The CT600 must include information such as your turnover and profit for the reporting period, your tax computations, and the allowances and reliefs you’ve used.

This will then provide you with an estimate of how much corporate tax you will owe. Keep in mind that you must file your company’s tax return 12 months after the end of the accounting period that it pertains to. Even if your company is losing money, you must still file a CT600 to notify you of this situation.

If your profits total more than £1.5 million. You can then pay your bill in instalments over a period of time. They are due at various times throughout the year. Depending on the size of your company and how long your company has been in business. Payables are normally due quarterly for a typical 12-month period. With two of these instalments being due before the conclusion of the accounting period.

The instalments are used to estimate the companies tax liability due for the period. However, an adjustment is needed when the total amount is calculated after the period has ended.

You can no longer pay at the post office. However, there are different methods available for you to make your corporation tax payment online.

What are the Corporation Tax reliefs?

There are a number of Corporation Tax reliefs available. Which you can take advantage of in order to reduce your Corporation Tax bill:

The Patent Box. Profits earned from patented inventions and specific other innovations are subject to a lower rate of Corporation Tax.

Businesses in the creative industries (film, television, video gaming, and so on) can claim a more significant deduction when computing taxable profits as a result of tax relief for the creative industries.

When a company disincorporates it is exempt from paying Corporation Tax on the assets it transfers to its shareholders. For example, when it converts from a limited company to a sole trader or partnership.

• Marginal Relief. This may be available if your company had profits between £300,000 and £1.5 million from before April 1 2015 

• Trading losses, capital, and property income losses, and terminal losses. If you incur a loss as a result of trading, the sale or disposal of a capital asset, or as a result of property income, you are entitled to a tax relief.

What if I Suffer From Corporation Loss?

Consider the following scenario. Your firm or organisation is due for Corporation Tax and suffers a loss as a result of trading, the sale or disposal of a capital asset, or the receipt of rental income. If such is the case, you may be able to seek Corporation Tax reduction. It is possible to obtain tax relief by balancing the loss against other gains or profits. But it must be realised by your company in the same accounting period. You also have the option of carrying the loss back. If you fail to do so, the balance will be carried forward to the next accounting period. 

What exactly is a trading loss?

To calculate the trading profit or loss for Corporation Tax purposes. Firstly, the standard tax adjustments must be made. In order to figure out the profit or loss indicated in your organisation’s financial reports. If you incur a trading loss, you will not be able to use it in the same year. However, you may be able to select whether to carry it back to previous accounting periods. If not, it will be carried forward to be set off against the profit for future accounting periods.

What to do if you have a trading loss

Making a claim for trading losses is a required component of your Company Tax Return.

Form CT600 should be filled out if your claim is for the company’s most recent accounting period. If your claim is for the company’s most recent accounting period, enter a zero in box 155 and the whole amount of your loss in box 780.

In addition, you should enter the entire loss or as much of a loss as you are able to claim in box 275 against your total profits.

If the claim includes losses from a later accounting period, you must complete all of the steps listed below:

In CT600, Box 155 of the form should be zero.

Box 275 should be filled in with the total amount of trading losses incurred in this or a subsequent accounting period that can be deducted from total profits.

You should fill in the amount of loss incurred in this accounting period in Box 780.

Sidharth Bharthan Menon
CEO, taxtotal​