Corportation Tax is the key element for every Limited Company trading in the UK. Our detailed guide will help you understand how Corporation tax works and how it applies to businesses in the UK.
It is mandatory for every new business to register for Corporation Tax. Director of the company has to inform HMRC once the limited company is incorporated. Not just that, even when restarting a dormant business, the company Director is required to register for Corporation Tax and inform HMRC about it.
Corporation Tax is a tax which is applied to the profits of the limited company. Based on the company's annual profits, the tax amount is decided.
As per the information available on Gov.UK, you must pay Corporation Tax on profits from doing business as:
Every limited company is required to submit Corporation Tax returns annually and pay Corporation Tax on profits. Mostly, it is limited company Accountants who prepare and submit tax returns on their company's behalf. However, to do that, the Director of the limited company has to authorise the Accountant. This can be done by using HMRC's online service.
Accounting period of a limited company is normally of 12 months, and your company will be taxed on the profits made during the accounting period. At the end of your accounting period, you are required to complete Corporation Tax return (Form CT600). All companies are required to file Corporation Tax using HMRC's online service. Only in exceptional cases where the company is unable to file a return online, they can do so by using the paper form (CT600), but they need to have a reasonable excuse for doing that.
Even after authorising the Accountant for Corporation Tax, it is still the responsibility of the limited company Director to ensure that tax returns are submitted and paid on time. Not just that, it is also the responsibility of the Director to ensure that every detail on the Corporation Tax return is accurate.
The Corporation Tax rate for company profits in the 2017/18 tax year is 19%. Previously, i.e. from 1st April 2014 - 1st April 2016, Corporation tax rate for company with profits of £300,000 or less was set to 20%, and for companies making profits above £300,000 Corporation Tax rate was set to 21% in 2014, which was reduced to 20% since 2015.
| Company Profits | From 1 April 2017 | From 1 April 2016 | From 1 April 2015 | From 1 April 2014 |
|---|---|---|---|---|
| £300,000 or less | 19% | 20% | 20% | 20% |
| £300,000 or less | 19% | 20% | 20% | 21% |
During the Budget 2016 statement, Chancellor George Osborne had announced that he would reduce the Corporation Tax rate to below 15%. Well, only time will tell if his claims hold true or not.
Tax deadline depends on your company's taxable profits.
If your company's taxable profits are up to £1.5 million then, you must pay your Corporation Tax 9 months and 1 day after the end of your accounting period.
However, if your company's taxable profits are more than £1.5 million then, you must pay your Corporation Tax in instalments.
Corporation Tax can be paid in many ways. You can pay it through:
Bank account details are mentioned at the back of your payslip, sent to you by HMRC. If you are unsure, you can use Cumbernauld.
HMRC Cumbernauld details:
Account Name: HMRC Cumbernauld
Sort Code: 083210
Account Number: 12001039
HMRC Shipley details:
Account Name: HMRC Shipley
Sort Code: 083210
Account Number: 12001020
If you are making payment from overseas, you can use the below details:
Account Name: HMRC Cumbernauld
Account Number (IBAN - International Bank Account Number): GB62BARC20114770297690
Bank Identifier Code (BIC): BARCGB22
Account Name: HMRC Shipley
Account Number (IBAN - International Bank Account Number): GB03BARC20114783977692
Bank Identifier Code (BIC): BARCGB22
Please make sure you use your 17-character Corporation Tax payslip reference code for the accounting period you are paying. While normally CHAPS payments reach HMRC on the same day or next day, Bacs payments can take up to 3 working days.
You can also make multiple payments by CHAPS by sending an online CHAPS enquiry form, if you want to cover multiple companies for the same accounting period.
Please Note: Incorrect reference number can cause delay in payment receipt.
HMRC Banking Address:
Barclays Bank PLC
1 Churchill Place
London
United Kingdom
E14 5HP
If you don't pay your Corporation Tax by the deadline then, you'll end up paying penalties. Please see the table below to find out how much penalty is applicable on Corporation Tax late filing.
| Timeline after your deadline | Penalty |
|---|---|
| 1 Day | £100 |
| 3 Months | Another £100 |
| 6 Months | HM Revenue and Customs (HMRC) will estimate your Corporation Tax bill and add a penalty of 10% the unpaid tax |
| 12 Months | Another 10% of any unpaid tax |
If your tax return is late 3 times in a row, the £100 penalties are increased to £500 each. If your tax return is 6 months late, HMRC will write telling you how much Corporation Tax they think you must pay. This is called a ‘tax determination’. You can’t appeal against it.
There are no actual penalties for late payment of Corporation Tax. However, interest is charged (approx. 3% per annum) on a daily basis for the outstanding tax. HMRC may also outsource your account to debt collection agencies.
HMRC uses private debt collection agencies to recover the outstanding Corporation Tax. If you don't pay your Corporation Tax on time, your account may get outsourced to them, and you may receive a notice from the debt collection agency.
List of debt collection agencies used by HMRC
This list can be verified on Gov.UK website.
Also, if you have Self Assessment or VAT debt and don’t respond to contact from a debt collection agency, agents from Rossendales Ltd or Resolvecall Ltd might visit you to collect your debt in person.
If you need any help with Corporation Tax then, simply fill in the Request a Call Back form on this page or write to us at [email protected] and we will get in touch with you.