They say death and taxes are the only two certainties in the world! And if you’re a registered business, there’s no getting away from paying tax either.
Companies paying tax pay what is known as corporation tax.
What is corporation tax?
Since April 2016, it has been calculated at 19 per cent of a company’s annual profits.
There is no tax-free allowance – which individuals receive – but there are legitimate expenses and deductions that can be claimed. This can help reduce your tax bill.
Every company must fill in one form a year to declare their profits and calculate the amount of their corporation tax bill.
The government confirmed in that the rate would remain at 19 per cent for the next two years, thereby reversing a previous pledge to reduce it to 17 per cent from April 2020.
Who pays it?
Corporation tax has to be paid by all limited companies registered with HMRC. Sole traders and partnerships don’t pay corporation tax. Instead, they have to fill out a tax return and apply income tax to their earnings.
There are, however, other organisations that may need to pay corporation tax despite not being incorporated as limited companies. These include housing associations, membership organisations, clubs and societies and co-operatives.
A company must calculate its own corporation tax, which is different to individuals, where HMRC calculates your tax bill based on details provided. You’ll need to complete a company tax return each year, also known as form CT600.
Your accounts need to be filed to both HMRC and Companies House. Even if you have no corporation tax to pay – if you have made losses – you’ll still need to submit a company tax return.
When your payment is due, you’ll receive payment reminders from HMRC unless you fill in the ‘nil to pay’ form. You can also send back the payslip on the HMRC reminder marked with the words ‘NIL due’.
The filing deadline is different to other taxes. It has to be paid before you file your company tax return. This means the date it needs to be paid depends on your tax accounting period.
You have to settle your corporation tax bill nine months and one day after the end of your accounting period from the previous financial year. If your accounting period ends 31 December then your bill will be due 1 October.
Ways to reduce your bill
There are several ways you can reduce your corporation tax bill. These include claiming allowable expenses. This could include things such as travel expenses, office equipment and training.
You could also pay yourself a salary which you will then have to pay tax on as an individual, but it will reduce your company profits. There are other ways of reducing your bill and an accountant will be able to advise you on some of the best methods going forward.
If you are setting up in business or want to know more about corporation tax and how we can help you, contact us today.