Understanding the UK Tax System: Corporation Tax
UK Corporation tax is a key aspect of business finances that every company should understand. This article provides a detailed overview of what UK corporation tax is, who it applies to, and how it is calculated.
What is Corporation Tax?
Corporation Tax is a direct tax imposed by the UK government on the profits of limited companies and some organisations including clubs, societies, and unincorporated associations. It is governed by HM Revenue and Customs (HMRC).
Who Pays Corporation Tax?
Corporation Tax applies to all UK domiciled companies, including:
- Public and private limited companies
- Unincorporated associations such as clubs and co-operatives
- Foreign companies with a UK branch or office
How is Corporation Tax Calculated?
Corporation tax is calculated and paid annually based on your company’s ‘chargeable profits’. These include the money your company or association makes from:
- Doing business (‘trading profits’)
- Investments
- Selling assets for more than they cost (‘chargeable gains’)
As of April 2021, the basic rate of corporation tax is 19%. However, this is set to increase to 25% in April 2023 for companies with profits over £250,000. More information can be found on the HMRC website.
How to Pay Corporation Tax
Corporation tax must be paid before your company files its tax return. It is your company’s responsibility to calculate and pay this tax; HMRC does not send a bill. Here are the steps to pay your company’s Corporation Tax:
- Register for Corporation Tax when you start doing business or restart a dormant business.
- Keep accounting records and prepare a Company Tax Return to show how much Corporation Tax you owe.
- Pay Corporation Tax or report that you have nothing to pay by your deadline, which is usually 9 months and one day after the end of your accounting period.
- File your Company Tax Return by your deadline, which is usually 12 months after the end of your accounting period.
Conclusion
Understanding and correctly managing Corporation Tax is vital for any business in the UK. Failure to comply with the correct procedures and deadlines can result in penalties from HMRC. For more detailed information on Corporation Tax, visit the official HMRC page.
Note: This article is intended to give a basic understanding of Corporation Tax and does not constitute professional advice. Always consult with an accountant or tax professional to understand the nuances of your specific situation.
