Corporation tax: everything you need to know as a business owner

An inevitable aspect of owning a business is paying taxes. From income tax to VAT to business rates, it can be hard to keep track of all taxes that need to be accounted for.

Corporation tax is one of the most important taxes that your business will pay, so it’s crucial that you have a clear understanding of what it is and how it’s calculated.

In light of this, we’ve created a straightforward guide on the topic to assist you in understanding its fundamentals and hopefully address any questions you may have.

What is corporation tax?

Corporation tax is the main tax paid by UK businesses. It is calculated based on a business’s annual profits.

Your company will pay this tax on profits made from trading, investments, and any assets that are sold for more than they cost.

Who pays corporation tax?

This tax is paid by all UK limited companies. Clubs, societies, trade associations, and housing associations may also be responsible for paying corporation tax, even if they are not incorporated.

Any foreign company with a UK branch or office will also be required to pay the tax. If your company is based in the UK, it pays the tax on all its profits from the UK and abroad.

Sole traders or partnerships do not have to worry about corporation tax, as they will instead pay income tax on their profits via a self-assessment tax return.

What are the rates for small and medium businesses?

Back in April, the rates rose from 19% to 25%. However, smaller businesses are not required to pay this full rate.

For any company whose annual profits are at or below £50,000, the rate will be set at 19%. A marginal exemption of 26.5% will be available to businesses with yearly income between £50,000 and £249,999, which will allow them to pay less overall.

Any business that earns an annual profit of more than £250,000 will pay the full 25% rate.

When is the deadline?

The deadline for corporation tax payments is precisely nine months and one day following the end of a business’s accounting period. For instance, companies with a January 31st year-end would have to pay their bill by November 1st.

If you have taxable profits of more than £1.5 million, you will be required to pay this bill in instalments.

Corporation tax cannot be paid by post, all business owners must pay their bill on the government website after HMRC has received its tax returns.

What are the penalties?

HMRC will charge a business interest if it does not pay its corporation tax on time, in full or at all.

This interest will be charged from the day the tax should have been paid, at the current rate of 2.75%.

A penalty fee will also be charged to a company that does not pay its corporation tax bill. A business will be fined £100 after one day. It must pay an additional £100 fine after three months. After a period of six months, HMRC will estimate a business’ tax bill and add on a 10% late payment penalty. The business’s bill will be increased by another 10% after 12 months.

Will I receive any support?

There are many different ways to reduce your company’s corporation tax bill. From taking advantage of the Annual Investment Allowance to surprising HMRC with an early bill payment. We put together a list of ways you can reduce your company’s tax burden in a previous blog post.

How One Two One Accounts can help

Here at One Two One Accounts, we can take care of your corporation tax return by calculating your business’s profits, identifying tax savings in your operations, and preventing you from paying more tax than you should be.

In our 15 years of expertise, we have filed more than 2,500 tax returns, so we can guarantee that we are the perfect partner for any business in need of accounting assistance.

For help in understanding and processing your corporation tax bill, contact us today.