Introduction
In the United Kingdom, corporation tax is a legal obligation for all limited companies. It is a type of tax levied on the profit earned by the companies. In this blog post, we will delve into the intricacies of corporation tax, its rate for limited companies, and how to calculate it.
What is Corporation Tax?
Corporation Tax is a direct tax that must be paid by all active limited companies on their annual profits. These include both small and large limited companies, non-profit organizations such as clubs and societies, and foreign firms with a UK branch or office. The HMRC provides detailed information about Corporation Tax.
Current Corporation Tax Rate
As of the fiscal year 2021/22, the main rate for Corporation Tax in the UK stands at 19%. This rate applies to all limited companies regardless of their size or the sector in which they operate. It is important to note that the Corporation Tax rate is not fixed and is subject to change as it is announced by the Chancellor of the Exchequer during the yearly Budget.
Calculation of Corporation Tax
Corporation Tax is calculated and paid annually based on your ‘Corporation Tax accounting period’, which is typically the same as your company’s financial year. So, if your company makes £100,000 in profit, you would currently pay £19,000 in Corporation Tax.
How to Pay Corporation Tax
- Calculate your profit or loss: Before you can pay your Corporation Tax, you must calculate your profit or loss for Corporation Tax.
- Prepare and file a Company Tax Return: You must then prepare and file a Company Tax Return, even if your company makes a loss or has no Corporation Tax to pay. The Company Tax Return form (CT600) can be found on the HMRC website.
- Pay your Corporation Tax: Once your Company Tax Return has been processed, you can pay your Corporation Tax. This must be done nine months and one day after the end of your accounting period.
Reliefs and Deductions
You can reduce the amount of Corporation Tax you need to pay by claiming for certain reliefs and deductions. These include:
- Capital Allowances: These can be claimed when you buy assets for your company, such as equipment, machinery, or business vehicles.
- Research and Development (R&D) Relief: This can be claimed by companies that spend money developing new products, processes, or services.
- Trading Losses: If your company makes a loss, you might be able to claim relief from Corporation Tax.
More information about reliefs and deductions can be found on the HMRC’s website.
Conclusion
Understanding Corporation Tax is crucial for all limited companies in the UK. It is important to stay updated with the latest tax rates, reliefs, and deductions to manage your company’s finances effectively. Remember, failure to pay Corporation Tax or late payment can result in penalties, so it’s important to plan ahead and ensure timely payments.
