Corporation Tax

Corporation Tax

Corporation Tax is a tax levied on the profits of a UK Company. Corporation Tax must be paid on profits of doing business as a:

  • Limited Company
  • any foreign company with a UK branch or office
  • a club, co-operative or other unincorporated association

You won’t automatically get a tax bill for Corporation Tax as there are specific duties that need to be carried out in order to work out, pay and report the tax owed.

You will need to register for Corporation Tax when you start trading as a business and unincorporated associations must write to HMRC

You will need to keep accounting records and prepare a Company Tax Return or report that you have nothing to pay. There is a deadline of 9 months and 1 day after your accounting period to do this.

You have to file your Company Tax Return by your deadline – usually 12 months after the end of your accounting period. Your accounting period is normally the same 12 months as your accounting period covered by your accounts.

You will pay Corporation Tax on the profits made within the company from:

  • Trading/Doing Business
  • Investments
  • Selling assets for more than they cost (chargeable gain)

If your company is based in the UK, it will pay Corporation Tax on all the profits made from both the UK and abroad. If your company is not based in the UK but has an office or branch in the UK, it will only pay Corporation Tax on those profits made in the UK.

The rate at which Corporation Tax is paid is 20% for the Financial Year starting in April 2016 and there is no longer a Small Profits Rate. A cut to 19% is due next year and a further reduction is scheduled for 2020, originally thought to be 18%, it is now 17% following an announcement in the last Budget.

The falling rate of Corporation Tax is one of the reasons why there was a reform of the dividend taxation last summer. The new higher rates of tax on dividends above the new £5,000 dividend allowance is designed to claw back some of the lost National Insurance Contributions (NICs) revenue and discourage business owners from drawing dividends as opposed to salary or bonuses.

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