Corporation Tax affects limited companies who are registered in the UK, as well as any foreign company who operate from a UK branch or office. UK-registered companies pay tax based on their global profits, whereas those registered overseas only pay tax on profits generated from their UK sales.
If you’re operating as a sole trader or partnership, you’re considered to be self-employed so you don’t need to worry about corporation tax. Corporation tax only applies to limited companies.
Unlike income tax, there is no threshold on profit before you start paying corporation tax. All companies (except certain industries such as oil and gas) must pay the same rate, regardless of size, turnover and profit.
The filing deadline is 12 months after the end of your financial year, and this type of tax can be filed after it is paid. At the end of each financial year, you have 9 months from the end of your accountancy period to submit your accounts to Companies House.
For small businesses, it’s a good idea to have your accountant file your tax return when you submit your company accounts, as this must be paid within the same timeframe.
If you haven’t made any taxable profit in your financial year, you wont have any corporation tax liability. You will still need to inform HMRC by filing a ‘nil return’.
The standard rate of corporation tax is 19%. This is applied to your taxable profits, which include:
- Profit from doing business (e.g. sales)
- Income generated from company investments (e.g. property)
- Money associated with selling assets for more than you originally paid for them (e.g. equipment or machinery).
To calculate your taxable profits, you can deduct certain expenditure. This means that the profit and loss shown on your corporation tax return can be different from that shown on your company accounts.
For example, any expenditure relating to sales, such as purchasing raw materials, can be deducted from your taxable profits. This also applies to staff wages and business running costs, including repairs and renewals.
There are various schemes that can be used to reduce the amount of corporation tax that you pay, such as:
- Annual Investment Allowance
- Research and Development Tax Relief
- Enhanced Capital Allowances
There are many complexities and nuances to corporation tax and we strongly recommend discussing your situation with an accountant. A good accountant will be able to help you pay the correct amount of corporation tax, taking advantage of deductions and allowances that might apply to your business.
Thoughts on corporation tax – Yorkshire Powerhouse
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