Any UK limited company needs to pay Corporation Tax (CT) on any profits made during the financial year, regardless of how big or small the company is. We’ve put together a quick guide for any small business on the ins and outs of corporation tax, from who pays it and the deadlines to be aware of, to how it gets paid.
After a small business has been set up, one of the first tasks that needs to completed within the first three months of trading, is registering for Corporation Tax – which can be done with HMRC. Any buying, selling, advertising, renting of property and employees gained all count as trading, and remember when a new company gets registered with Companies House, HMRC will automatically be notified of the new business. As a reminder, they will send a CT registration form (CT41G), along with a Unique Taxpayer Reference (UTR) to the company’s registered offices.
Any profits that are made from doing business, or from company assets such as land, property, equipment and machinery – will count towards Corporation Tax. Further information regarding what type of business it is, when trading actually started, and when the annual accounts will be set up – all has to be provided to HMRC.
The Current Rates
The current CT rate for company profits has been set at 19% since the 1st April last year. This was changed to be the standard rate for all businesses as per government legislation in 2015, which changed the previous rates that used to depend on how much profit a company made. Rates will drop to 17% from the 1st April 2020, as a result of the current government’s commitment to keeping the Corporation Tax rate at low levels.
As well as suffering penalties for simply registering late, businesses will also be fined for failing to pay any Corporation Tax owed on time. Payment of any CT owed needs to completed before a company files its tax return, and the date of the deadline can vary depending on the specific accounting period of the business, which for most will usually end on the 31st March. If this is the case then the Corporation Tax deadline will be 1st January, as the date the tax bill is due to be paid is nine months and one day after the end of the accounting period.
Keep in mind, tax returns will need to be completed in order to accurately work out how much CT there is to pay. tax returns also need to be filed no later than 12 months after the end of the accounting period they cover. Also, due to the 12 month restriction, some startups may have two CT accounting periods.
When a business is working out exactly how much Corporation Tax is due, there are a certain allowances available. These CT allowances mainly revolve around specific business expenses that can sometimes be claimed back, such as – any training, business mileage, and accommodation. All expenses must be for business purposes only of course, and not used personally.
Essentially any cost of running the business can be deducted from any profits before tax, with some exceptions – like employee benefits, and entertaining clients. Other costs that don’t count as potential deductions on taxable profit include the purchase of certain business assets, like machinery, vehicles, or any equipment that is then kept for use in the business. Claiming capital allowance could be an option in regards to these.
How to Pay
After the deadline and the the amount of Corporation Tax owed has all been worked out, all that’s left is to get it paid. HMRC has several ways in which any CT can be paid, which can be either electronically or from the bank or Post Office. Whichever method is chosen, the time it takes for the payment to actually clear with HMRC can vary, so keep this in mind. Also, quoting the 17-digit CT reference number for the accounting period that’s being paid, is always necessary.
If paying by CHAPS, online or telephone banking – the payment will clear the same day.
If paying by BACS bank transfers, Direct Debit, or paying online with your credit or debit card – the payment will take around three working days to clear. If paying at the Post Office, bank or building society – the payment will also take around three days to clear, and remember to take the CT payslip, which HMRC sent. If a Direct Debit hasn’t yet been set up for CT payments – then it will take five working days for the first payment to reach HMRC.
Certain CT Reliefs
Any business could potentially minimise its Corporation Tax bill from a number of available reliefs that may be applicable, including:
- Creative industry reliefs – claim deductions back if the business is part of the creative industries.
- Research & Development reliefs – claim deductions back if the business works on science and technology projects.
- The Patent Box – when a business earns any profit from patented inventions, or other innovations, then a lower rate of CT will be available.
These are just a few examples, other reliefs are also available.
If you need help with any aspect of sorting out Corporation Tax for your business, then look no further than RJF.
Our Manchester based accounting services can guide you through any of the financial aspects of your small business – and we pride ourselves on being the essential extension that can work seamlessly alongside you.
So if you’re still unsure and are looking for help when it comes to Corporation Tax – contact RJF today, and get help making the best decision for your business.