Contents

  • Summary
  • Introduction
  • What is corporation tax?
  • Who needs to pay corporation tax?
  • What are the current rates?
  • How do I register for corporation tax?
  • How do I file a company tax return?
  • When do I file a tax return?
  • How do I pay my bill?
  • When should I make the payment?
  • What happens if I submit a payment late?
  • Final thoughts
  • Frequently asked questions (FAQs)

Summary

Every UK business needs to pay Corporation Tax. For new business owners, learning the ropes of corporate tax can be an uphill battle. To make this process as simple and straightforward as possible, this guide explains everything there is to know about UK Corporation Tax. We outline who it applies to, the size of the current rates, how to register your company to HMRC, how to file a tax return, when and how to make a payment and what happens if you miss a deadline. We wrap up the article by answering some frequently asked questions.

Introduction

If you own a limited company in the UK that's turning a profit; you need to pay corporation tax. While it may be a source of frustration for many business owners, it's one of the most important taxes you'll have to settle. Not only because of the vital stream of revenue it provides to the UK government but also because of the heavy fines you could face if you submit a payment late or miscalculate the amount.

Due to the regular revisions and reforms, navigating this process is rarely straightforward, especially for new ventures. This is why we’ve pieced together this simple guide to corporate tax, so you can understand taxation better, abide by the rules of HMRC and avoid getting caught out by future deadlines. But before we run you through the details, what exactly is corporation tax and who needs to pay it?

What is corporation tax?

As the name suggests, corporation tax is a levy company's pay in the UK. Similarly to income tax for individuals, it is calculated by a business's annual profits, so the amount paid varies across businesses. Unlike income tax, however, company's must calculate, report and issue their payments themselves or rely on the help of an external accounting service.

Who needs to pay corporation tax?

Corporation tax needs to be paid by all limited companies. In addition to this, there are a number of non-limited organisations that may be subject to the tax, including:

  • Housing associations
  • Co-operatives
  • Clubs and societies
  • Membership organisations

Corporation tax doesn't apply to sole traders or partnerships. Instead, they have to pay their income tax via a self-assessment tax return. If a company is based within UK territories, it will need to pay tax on all of its profits from the UK and abroad. Alternatively, if an international company has a branch within the UK, it is required to pay corporate tax of profits from UK-based activities.

What are the current rates?

The corporation tax rate is currently set at 19% for all business profits. This rate has stayed the same since April 2016 and is expected to remain in place for the next two years. The government planned on lowering the rate to 17%, but this proposition was scrapped in the 2020 March budget in response to the coronavirus pandemic.

How do I register for corporation tax?

If you've just started a new company and registered it with Companies House, it's time to register for corporation tax. You'll need to do this within three months of conducting activities, or you could be lumped with a penalty fine. If you're unsure what these activities relate to, you can refer to this guidance here.

To register, you need to visit the Gov.UK website and sign into or create your business account. Then, you follow the guidance and enter your details through HMRC. Before you fill in these details, you should have the following information on hand:

  • Your company’s Government Gateway user ID and password
  • Your company’s 10-digit Unique Taxpayer Reference (UTR)
  • Your company’s name
  • Your company’s main address
  • Your company’s registration number
  • The name and home addresses of the directors
  • The date that you started doing business
  • The date your annual accounts are made up to

After you’ve entered your business’s details, you will need to file a Company Tax return. Next, we cover how this can be done.

How do I file a company tax return?

Otherwise known as a CT600 form, a company tax return is filed by companies to report their corporation tax figures to HMRC. Tax return forms need to be filed once a year, and the due date is determined by your company’s accounting period. If you are unsure what this period may be, you can find out on your HMRC business tax account.

In most cases, you’ll need to fill in the document digitally. However, if you’re filing your CT600 form in Welsh or you can’t find it online, you can request a paper copy. If you opt for this method, you must also fill in a WT1 form explaining why you’ve used a paper form.

The CT600 is 11 pages long in total, but many questions won’t apply to your business. This form will ask you questions regarding the following:

  • Your company’s basic information
  • Your accounting period
  • Your company’s turnover
  • Your company’s income
  • Your company’s deductions and reliefs
  • Your corporation tax calculation

If you're unfamiliar with corporate tax, filing your CT600 form can be a potentially lengthy and complex process. However, if you follow the instructions carefully and refer to useful resources for advice, the process can be made as painless as possible. Alternatively, if financial calculations are a little outside of your comfort zone, you can always hire external accountants to file them on their behalf.

When do I file a tax return?

According to HMRC, you are required to submit your tax return 12 months after the end of your accounting period. Typically, your accounting period will mirror your company’s financial year. However, if your business is in its first year, the length of this period may slightly differ.

It’s also important to note that if your accounting period is longer than 12 months, you may need to file two separate tax returns.

How do I pay my bill?

Once you've filed your tax return, it's time to think about making your payment. There are a number of different ways your business is able to pay its bill, so if your small-to-medium-sized enterprise (SME) doesn't currently handle online payments, you don't need to worry.

You can send your payment to HMRC via:

  • Online banking
  • Telephone banking
  • Direct debit
  • Bankers Automated Clearing System (BACS)
  • Clearing House Automated Payment System (CHAPS)

If you want your payment to be received the same or the next day, you should use online or telephone banking, online banking or CHAPS. Alternately, your payment will be sent in three working days if you pay via BACS or direct debit.

When should I make the payment?

The deadline for corporation tax will vary from business-to-business. Just like with filing your tax returns, your company’s unique deadline will depend on your accounting period.

If your company’s annual profit is short of £1.5 million, you need to pay your corporation tax nine months and one day after your accounting period comes to an end. This means that if your accounting period ends on the 1st of January 2022, your company’s tax deadline would be on the 1st of September the same year.

On the other hand, if your annual turnover is over £1.5 million, you are required to pay your Corporation Tax electronically in more regular instalments. This, once again, will depend on the length of the company’s accounting period. For instance, if a business has an accountancy period of 12 months, they’ll be expected to pay their tax in four monthly instalments.

For more information on paying corporate tax as a large company, you can refer to this guidance by Gov.uk.

What happens if I submit a payment late?

Every business owner intends to make their payments on time. However, sometimes circumstances get in the way that prevents them from submitting their tax returns and payments in a timely manner. If you ever find yourself in this position, here’s what is likely to happen.

Late tax returns

If you file your tax returns after your deadline, you may be subjected to a fine. If you submit them one day late, you may be charged £100. If your return is still not filed after three months, you will be charged an additional £100. After six months, HMRC will produce an estimate of your bill and add a 10% penalty on top of your unpaid tax payment. Finally, after 12 months, they will add another 10% penalty.

Late tax payments

If you miss a payment deadline, HMRC will charge you interest on the amount of money that you owe. On top of this, you may be subject to a penalty or surcharge.

If your payment is left outstanding for an extended amount of time, HMRC also has the power to take action to recover any funds. This could include them collecting owed payments through your earnings, using debt collection agencies, selling things you own, claiming money from your bank or business society accounts, taking you to court, and in extreme cases, closing down your business.

Final thoughts

When it comes to corporation tax, it’s always best to be as organised as possible to avoid getting caught out. By following the guidance we’ve listed above, you should have all the information at hand to submit your tax return and payments in a timely manner.

If your business is struggling to make Corporation Tax payments, it should contact HMRC as soon as possible. This way, you can agree upon a payment plan before more drastic action has to be taken. Additionally, it’s always worth checking if you’re eligible for reliefs that could make your tax payments more affordable. Visit this page to see if you’re able to receive deductions.

If tax payments are likely to jeopardise your company’s cash flow, it could also be worth exploring alternative financing. MarketFinance caters to SMEs in need of short or longer-term funding solutions. We offer a range of flexible options that take the friction out of finance, and we can deliver funds into your account the next working day.

If you’re interested in our offerings, you can learn more here.

Frequently asked questions (FAQs)

What is UK corporation tax?

Corporation tax is a levy company's pay in the UK. Similarly to income tax for individuals, it is calculated by a business's annual profits, so the amount paid varies across businesses. Unlike income tax, however, company's must calculate, report and issue their payments themselves or rely on the help of external accountancy services.

Who needs to pay corporation tax in the UK?

As it currently stands, corporation tax needs to be paid by all limited companies. In addition to this, there are a number of non-limited organisations that may be subject to the tax, including housing associations, co-operatives, clubs and societies and membership organisations.

What is the current rate of corporation tax in the UK?

The corporation tax rate is currently set at 19% for all business profits. This rate has stayed the same since April 2016 and is expected to remain in place for the next two years. The government planned on lowering the rate to 17%, but this proposition was scrapped in the 2020 March budget in response to the coronavirus pandemic.

How do I file my company for corporation tax?

To file your company for corporation tax, you'll need to fill out a CT600 form. This form needs to be filed once a year, and the due date is determined by your company's accounting period. If you are unsure what this period may be, you can find out on your HMRC business tax account. In most cases, you'll need to fill in the document digitally, but if you're filing your CT600 form in Welsh or you can't find it online, you can request a paper copy.

How do I pay my corporation tax contribution?

There are a number of different ways your business is able to pay its bill, including via online banking, telephone banking, direct debit, Bankers Automated Clearing System (BACS), or Clearing House Automated Payment System (CHAPS).

If you want your payment to be received the same or the next day, you should use online or telephone banking, online banking or CHAPS. Alternatively, your payment will be sent in three working days if you pay via BACS or direct debit.