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Corporation Tax

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Corporation tax is a tax that has to be paid by limited companies on their profits.
Self employed people do not pay corporation tax. Some groups will be liable for this sort of tax :-

  • members' clubs, societies and associations
  • trade associations
  • housing associations
  • groups of individuals running a business as a co-operative

Liable for Corporation Tax

If your company is liable to pay corporation tax you should:

  • Contact the Inland Revenue inform them that your company exists and that it is liable for tax. You should contact your local Inland Revenue office.
  • You can file a self-assessment Company Tax Return for your company, calculate your own corporation tax liability and pay it without prior assessment by the Inland Revenue.
  • You should record all of your companys expenditure and income, this will help you to be precise and accurate in working out your tax liability.

Incorrect or late tax returns may well result in a fine. Always make sure you know when the dead line is for filing your tax return forms and make sure the Inland Revenue receive it on time.

Calculating corporation tax

A company tax return form (CT600), accounts and tax calculations all make up a company tax return. You can complete a tax return online or use the services of an accountant to help you complete the necessary documents. You could choose to authorise your accountant to register and use the CT online services that are available.

Chargeable gains

The profit made from the sale or disposal of any company-owned asset is considered Chargeable Gains. Items which are bought and sold as part of normal trade are not included. Companies are not generally liable to capital gains tax, instead they are liable to corporation tax on their net chargeable gains.

Capital allowances

Capital allowances can be claimed for certain items of equipment and apparatus purchased for use in the business when calculating the profit chargeable to corporation tax.

There are three rates of corporation tax. They are: the starting rate, the small companies' rate and the main rate .

  • Companies with profits up to £10,000 pay a 0% rate, with a 19% rate for profits distributed to non-company shareholders. The zero rate remains if profits are re-invested in the business.
  • The next band is the small companies rate of 19% which is paid by companies with an annual profit between £50,001 and £300,000.
  • The main rate is 30% and applies to companies with profits above £1.5 million.
  • Companies that fall in the gaps between these bands pay the next band up but with marginal relief to ease the move up the bands.

Keeping records for corporation tax

It is a legal requirement to keep accuate records of outgoings and income in order to correctly complete a Company Tax Return.

These records should include:

  • details of all receipts and expenses incurred in the course of your company's activities
  • details of all sales and purchases made in the course of trade, if your company has a trade that involves dealing in goods
  • all other supporting documents

The size and type of your company will determine the precise records you need to keep, but the records must be adequate to enable you to send in a correct Company Tax Return.

For tax purposes, the Inland Revenue requires any organisation treated as a company to keep its records for at least six years from the end of your accounting period. In certain circumstances, such as a late tax return or an Inland Revenue enquiry, your company may need to keep records longer than the six-year period.

If your company does not keep records, the Inland Revenue can charge a penalty of up to £3,000.