Corporation Tax is chargeable on profits of incorporated businesses. It is due on all profits a business makes from its regular trade but also from other chargeable gains including rental and investment income. It is a complex tax however this page gives information on some of its main features.
Corporation Tax Registration
A business is required to register for Corporation Tax with HMRC within 3 months of starting to trade. Please beware that failure to do so can result in penalties. See the HMRC website for more information on registering for corporation tax.
You will need the companies Unique Tax Reference (UTR) Number to register. This should have been posted to the company address after incorporating a limited company. If you have not received a UTR you will need to request one from HMRC. In addition to your UTR you will need:
- Company Registration Number
- The date it commenced business
- The date its company accounts are prepared up to
Please note, if the company is not trading (a dormant company) it is not required to register for corporation tax.
Company Tax Returns
Once registered for corporation tax, HMRC will give the business a deadline for paying corporation tax and submitting a corporation tax return. Tax returns are due 12 months after the accounting period that they cover. Penalties are charged for late filing.
Company Tax Returns (CT600) need to be submitted to HRMC along with company accounts including a balanced balance sheet. These can be submitted through the government gateway on the HMRC website.
As well as submitting tax returns, a company will also need to pay corporation tax to the HMRC. This is usually due 9 months and 1 day after the end of its accounting period.
Calculating Corporation Tax
A company’s corporation tax liability is based on its tax-adjusted trading profits. These will be different to the profits reported in its annual accounts as these will be adjusted for disallowable expenditure. Some common examples of expenditure disallowed include:
- Asset depreciation
- Shareholders Dividends
- Fines and Penalties
- Client entertainment
- Movement in general provisions
Depreciation is not deducted from profits when calculating tax-adjusted profits. Businesses are however allowed to claim capital allowances for capital spend on assets used in the business.
Annual Investment Allowance
Companies have an Annual Investment Allowance which allows them to deduct 100% of the value of qualifying assets from taxable profits up to a value of £200,000 (from January 2016) each year. The Finance Bill 2018 increased the annual limit to £1million.
Plant, machinery, and equipment qualify for AIA. For the avoidance of doubt, this will include spend on computer equipment and networks, fixtures and fittings and can include some integral building features such as lifts and air-conditioning. Please note that land, buildings, and cars do not qualify for AIA.
HMRC also allows enhanced 100% capital allowances for energy saving equipment including zero emissions vehicles.
Writing Down Allowance
Items which do qualify for AIA, due to the nature of the asset eg cars, or with values exceeding the annual AIA limit, may still qualify for capital allowances. Your business may be able to claim writing down allowance on these items.
Writing down allowance allows you to write off a percentage of the value of the asset each year against tax. The amount claimed each year will vary depending on the asset, eg the CO2 emissions of a car. See HMRC guidance to calculate the WDA allowable each year.
As part of the 2018 finance bill, the government introduced a new Structures and Buildings Allowance which allows companies to claim allowances for spend on physical structures over 50 years.
Corporation Tax Rates
The main rate of corporation tax for UK businesses is currently 19%. The UK government has expressed its intention to lower the rate of corporation tax from 2020 to 17%. There is another rate for “ring fence companies which make profits from oil extraction in the UK.
As stated above this page relates to tax on incorporated entities. Some of the allowances will be different if you pay tax as a self-employed individual.