out Who Must Pay Corporation Tax? When and How Should They Do It? then read this article to find out!
Corporation Tax (sometimes referred to as Corporate Tax or Company Tax) is a tax that has to be paid on profits from organisations who are doing business as:
- A Limited Company
- Any Foreign Company with a UK branch or office
- A Club, Co-Operative, or other unincorporated association (such as a community group or sports club)
Unlike some other taxes, you don’t get a bill for Corporation Tax, but you are required to undertake specific actions to work out how much you must pay, and then you or your financial advisor (operating on your behalf) must report and pay the tax.
Depending on the size and scale of your venture, and if you’re entitled to any deductions, reliefs, or access to ring-fenced profit rates (such as those available for companies involved in oil rights or extraction in the UK), the amount you will be required to pay will vary, but the Corporation Tax rate for company profits, as of 2022, is 19%.
What Deductions and Reliefs Can be Made Against Corporation Tax?
There are a number of different allowances and reliefs that can be applied to your profits when you or your financial advisor are preparing your company accounts, and it’s important to know which ones you qualify for, and what can actually be deducted.
When preparing your accounts, anything you or your employees get personal use from, for example, must be treated as a benefit, and some expenses are disallowed for Corporation Tax purposes, such as money spent on entertaining clients – these costs must be added back into your profit figure when preparing your Company Tax Return.
You can claim capital allowances when purchasing assets that are kept solely for company use, such as business vehicles, machinery, or equipment, and you may also be able to claim for Research and Development (R&D) Relief, the Patent Box, Reliefs for Creative Industries (CITR), on Goodwill and other relevant assets, trading losses, or terminal, capital and property income losses.
If the company is closing and becoming a Sole Trader, Ordinary Business Partnership, or Limited Liability Partnership (LLP), there is also Disincorporation Relief to be considered.
For companies who had profits between £300,000 and £1.5 million, that were either from before the 1st April 2015, or had oil rights or extraction in the UK or UK Continental Shelf, Marginal Relief may also be available to claim.
When Must Corporation Tax Payments Be Made?
For companies with taxable profits up to £1.5 million, Corporation Tax must be paid within 9 months and 1 day after the end of your accounting period. Most businesses accounting periods will be the same as their financial year, but you may have two accounting periods in the year in which the company was set up.
For companies whose taxable profits exceed £1.5 million, then payment of Corporation Tax must be made in instalments.
Businesses with profits of £1.5 – £20 million will have quarterly instalments, two of which are due before the end of the accounting period. For 12 month accounting periods, the first instalment must be made within 6 months and 13 days after the first day of the accounting period, with the second payment due 3 months after the first payment. The third payment must be made 3 months after the second instalment (14 days after the last day of the accounting period), and the last should be made within 3 months and 14 days after the last day of the accounting period.
If the company has an accounting period of less than 12 months, then the last instalment must be made within 3 months and 14 days of the last day of the accounting period. If the accounting period lasts longer than 3 months, the first payment will be due within 6 months and 13 days after the first day of the accounting period. If the payment period is long enough, other payments will then also be due at 3 monthly intervals.
For Very Large companies, whose profits exceed £20 million, the dates in which payment are due, and the number of payments required will depend on the length of the accounting period. For example, a 12 monthly accounting period would require the first payment within 2 months and 13 days after the first day of the accounting period, followed by the remaining three payments on a regular 3 monthly basis. These payments are due on the 14th day of the 3, 6, 9th and 12th month of the accounting period.
Corporation Tax is definitely a complicated process, and it needs to be carefully evaluated and the figures worked out correctly, if you fail to make the correct payments, or are late with the instalments, you can be fined and charged interest at a rate of 3% on the outstanding balance due. The tax office may also issue a statutory demand, and in some circumstances may send a bailiff to the business to collect assets.
If you’re needing help with your Corporation Tax, whether that’s working out the deductions and reliefs you may be entitled to or making sure the returns and reports are correctly filled out, our team of experts is on hand to help you. Get in touch with us today and discover why your accountants should be Yorkshire Accountancy.
