Corporation tax is paid by limited companies on their profits. It is also paid by:
- members’ clubs, societies and associations
- trade associations
- housing associations
- groups of individuals carrying on a business but not as a partnership, such as co-operatives, even if they are not limited companies.
Corporation tax is paid (2013-14 rates) at the small companies’ rate of 20 per cent for profits of up to £300,000 and a main rate of 23 per cent for profits of over £1.5 million.
Companies making profits between £300,001 and £1.5 million receive marginal rate relief, which eases the transition between the lower and higher rates. If your company is liable to pay corporation tax, you must:
- tell HM Revenue & Customs (HMRC) that your company exists and that it is liable for tax
- file a self assessment tax return for your company, on which you calculate your own corporation tax liability and pay it without prior assessment by HMRC
- keep records of all company expenditure and income in order to work out your tax liability accurately.
How to pay: corporation tax is normally due by nine months and one day after the end of your company’s accounting period. So if your company tax return covers an accounting period from 1 January 2013 to 31 December 2014, corporation tax must be paid no later than 1 October 2015.
If your accounts cover a period of more than 12 months – which may happen if a newly-formed company is preparing its first accounts to cover a period of more than 12 months, or an existing company changes its financial year end – the tax due is based on the first 12-month period.
Large companies are required to pay their corporation tax in four quarterly instalment payments. These payments are based on the company’s estimate of its current year tax liability.
If you do not let HMRC know that you are liable for corporation tax, file your company tax return incorrectly, or pay your corporation tax late, you may incur a financial penalty. If you do not pay your corporation tax on time, HMRC will charge interest from the day it is due until you pay it.
Seeking professional advice is a wise step to ensuring that your financial affairs are as tax-efficient as possible.
HMRC recommends that corporation tax payments are made electronically, for example by direct debit, Bank Giro or via the Post Office. For more information, visit http://www.hmrc.gov.uk/ct/index.htm
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