Corporation tax is paid by companies that are legally incorporated as limited companies. Unincorporated organisations such as clubs and societies will also be liable for payment of corporation tax if they have a taxable income. Corporation tax is essentially a tax on the profits that your company makes in each financial year.
Registering a new business
When you set up a limited company you have a legal obligation to inform Her Majesty’s Revenue and Customs (HMRC) about the existence of your business. You will then be registered as a company which is liable for the payment of corporation tax. This would also be the time to inform them who is acting as your accountant.
The obligation to pay corporation tax is not something which can simply be ignored. It is advisable to be in control of corporation tax at all times. Like many other statutory tax obligations you can be penalised if you supply the wrong information or do not supply the required information on time. Thus you could find yourself in receipt of an unwanted fine.
Self-assessing your business
On an annual basis HMRC will send you a notice about filing a company tax return (CT600). It is worthwhile putting this date in you diary to ensure you do not forget it. It is your responsibility to fill out the tax return even if you do not receive the notice for whatever reason. The process involves filling out a company tax return form CT600. This form needs to be returned to HMRC along with company accounts.
HMRC has an online process for the submission of information. Businesses are therefore encouraged to use an online process where possible rather than submit by paper. The process is quicker and ensures your information is not lost in the post. Yorkshire Accountancy uses professional software to prepare company tax returns and submit them online. Thereby ensuring your tax return is never late.
What will you pay?
There are two rates of corporation tax depending on the level of profits you make. In 2009 – 2010 you will be charged 21 per cent on profits of up to £300,000. This is known as the ‘small companies’ rate. If you are lucky enough to make profits in the region of £1.5 million or more then the main rate will be 28 per cent.
The ‘marginal relief’ scheme is available for companies that make profits between £300,000 and £1.5 million. The purpose of the scheme is to assist companies in the transition from one rate to the other.
Deadlines and penalties
You can return your company tax return any time after the end of your accounting period (your year end). However, it does need to be done by the statutory filing date. This can be up to 9 months after the end of your accounting period. Alternatively if you are an early bird it can be returned three months after you receive a notice to file a company tax return.
It is advisable to retain all of your records for at least six years. This includes all receipts, invoices, in addition to a record of all sales and purchases made. For convenience these records can be scanned into a computer and retained electronically.
Please remember that this is only a quick guide and does not replace the necessity to speak to a professionally qualified accountant.