What Is Corporation Tax?
There are many figures youll have to keep in mind as you run your business, when it comes to corporation tax, UK businesses should consider it one of the most important. Corporation tax definition  Corporation tax is a tax that is placed on all limited companies, payable against profits. Companies do not have tax-free allowances, so when it comes time to pay corporation tax, UK businesses are taxed on the entirety of their profit. That said, expenses and deductions can be made  i.e., for travel or equipment  making your total corporation tax bill a little smaller. The current UK corporate tax rate is 19% and has been so since 2016. Previously, the corporate tax rate for each company would depend on their profits, varying from business to business. So, to calculate corporation tax, you take your taxable profits and calculate 19%. If your business made 300,000 for example, you would pay 27,000 in tax. Yes, if you run a limited company you need to pay corporation tax and its your responsibility as a director to make sure its paid. Other businesses or organisations may also need to pay corporate tax, even if they havent been incorporated by Companies House. These include:  Members clubs and societies  Housing or trade associations  Co-operatives  If your business structure is not one of the above, or a limited company, then you will pay your tax as an individual, using a self-assessment tax return. You must tell HMRC that your company has been formed within three months. Then, you can begin submitting a tax return each year. HMRC corporation tax processes are relatively straightforward. You will need to fill in a form known as a CT600 which must contain:  Your company name  Your company registration number  Your registered office  Your tax reference number  Your turnover and profit for the reported period  Tax calculation  Details of allowances and reliefs  Remember that your accounts need to be filed not only with HMRC but also with Companies House. HMRC corporation tax rules state you also need to complete a return even if you have no tax to pay. In this scenario, you simply fill in the form with nil to pay. Above all, you want to make sure you are completely accurate in your reporting. If its found that you made an error, you could be fined 0-30% for genuine mistakes, or even 100% of your tax bill for intentional inaccuracies/attempted fraud. In order to reduce your corporation tax bill, you can claim expenses. These need to be justifiable, as HMRC may ask for proof of your claims. Some of the things you can claim as expenses include:  Employee salaries (even if you are the only employee)  Travel tickets  Office equipment  Petty cash for buying tea and coffee for the office  There are no strict rules on what can and cant be claimed, as long as it serves a business purpose. For example, if you ask a client to travel to your office in London and foot their bill for a hotel stay, this is a business expense. Just remember to keep all your receipts and any other supporting documents. There are two corporation tax deadlines:  12 months after year end  Three months after you receive a notice from HMRC to complete a return  If your company makes anything under 1.5 million in profit, then your deadline will be slightly different  nine months and one day after the end of the accounting year. If you miss your deadline, the following fines will be imposed:  After one day: 100  After three months: 100  After six months: HMRC will make an estimate of your bill and add a 10% penalty  After 12 months: Another 10% will be added to your estimated bill  If you still do not pay corporation tax bills after this time, then HMRC can collect the money in other ways, including:  Collecting it through your pension or earnings  Employing debt collectors  Selling your possessions  Making you bankrupt  Taking it from a bank account you own  Taking you to court  In short, HMRC corporation tax is just one of the many functions of HMRC, all of which play a role in professional and personal finances, so its best to pay your corporation tax on time. We can help  GoCardless helps you automate payment collection, cutting down on the amount of admin your team needs to deal with when chasing invoices. Find out how GoCardless can help you with ad hoc payments or recurring payments.