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If you’re looking for a simple guide to Corporation Tax, you’ve come to the right place. Below, we break down some of the key points you need to know about Corporation Tax – from what it is to how it’s calculated, when it’s due and what you can do to legally reduce the amount you pay to HMRC.
Corporation Tax is paid on the annual profits made by your business. As part of your year end accounts preparation, your company income, or turnover amount for the year will be reduced by any tax allowable expenditure you have put through your company, and what is left is your profit figure on which corporation tax will be calculated.
Tax deductible expenses include your salary, as this is a cost to your company, but not dividends, as these are paid after corporation tax has been calculated.
Contractors working via their own limited companies will need to pay Corporation Tax on their trading profits every year, along with profit made on investments or by selling assets – like technology, software, property or shares.
The main Corporation Tax rate for the 2022/23 tax year is still 19%, which was the rate set back in 2016, but this is subject to change from 1 April 2023.
Most of the time, businesses register for Corporation Tax when they incorporate their company by registering it with Companies House. To do this, you’ll be asked to provide three of the following:
If you registered your company by post, through an agent (an accountant) or using third-party software, you’ll need to register for Corporation Tax on the government website. But don’t worry, this is something that your accountant can do on your behalf.
Once you have registered, HMRC will send your company unique tax reference (UTR) number through the post, and you will need this when corresponding with HMRC, and also when you file and make payment for your CT each year.
Corporation Tax is currently 19%. But as we’ll explain, this isn’t the case for all companies and on 1st April 2023, the government plans to shake things up.
From April 2023, the government is introducing a variable rate of CT. Non-ring fenced businesses with profits over £250,000 will be subject to Corporation Tax of 25%. A small profits rate (SPR) will also be introduced, meaning companies with profits of £50,000 or less will continue to pay 19%.
If your profits sit between £50,000 and £250,000, your Corporation Tax rate will be 25% (the main rate), but could be reduced through something known as marginal relief and so will only gradually increase the rate paid from 19% to 25%.
When working out your profits and therefore Corporation Tax, several allowable business expenses should be taken into account. These include:
There are lots of other legitimate business expenses, which will offset your Corporation Tax bill. You’ll find more details in our guide to contractor expenses.
Depending on your line of work, you might also find that your business is eligible for certain Corporation Tax reliefs. This could include:
If you make a profit in your company in a year, then you will have CT to pay, but if you make a loss, not only do you not have CT to pay, but you may also be able to offset the loss against previous or future profits.
There are two deadlines to be aware of:
Your accounting period tends to be your company’s financial year, but if you are not sure, you can ask your accountant or check the Companies House register.
How you pay Corporation Tax might depend on how quickly you’d like to make the payment:
It is worth noting that although you can pay your Corporation Tax on behalf of your limited company by using a personal bank card, or from a personal bank account, HMRC will not accept payments made on a personal credit card. If you do have to make the payment personally, you would just reclaim it from the company, as Corporation Tax is a tax on your business, not you personally.
No. Sole traders pay Income Tax via self-assessment, not Corporation Tax. This is because sole traders don’t trade through an incorporated company.
Find out more in our guide to sole trader tax.
So to recap, Corporation Tax is currently 19% tax on the profit your business makes in a company year.
For more information and to make sure you’re claiming the full range of allowable business expenses and reliefs – which legally reduce your Corporation Tax liability – please contact us.
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