As a limited company owner, your company is liable to pay Corporation Tax on its profits. All UK companies are liable to pay tax on their profits, regardless of where in the world these profits were accumulated.
How are company profits taxed?
Over the past decade, the rates of Corporation Tax have fluctuated, and the current rate payable by the vast majority of company owners – the ‘small profits rate’ – is 20% (2014/15 tax year). This rate applies to companies that make profits of £300,000 or less per year.
Above this point, between £300,000 and £1.5m, companies can reclaim ‘marginal relief’, and beyond that, the main rate of Corporation Tax applies, which is currently 21%. This rate is due to be cut even further to 20% from April 2015, when both the ‘main’ rate, and the small profits rates will be the same.
You can find out how much tax you owe instantly, with our online Corporation Tax calculator.
Registering for Corporation Tax
When you set up a new limited company, you are legally obliged to tell HMRC that you are liable to pay tax, and file a tax return each year, regardless of whether or not the company is expected to make any profits or not.
After setting up a company via Companies House, you will automatically be sent Form CT41G, which collects your new company details, which should be returned to the local Corporation Tax office right away.
Unless you’re an accounting expert yourself, you will need to appoint a qualified accountant to deal with your tax affairs on your behalf, using Form 64-8 (or via the online authorisation service).
It is important to note that as company director, you are ultimately responsible to ensure your tax returns are completely accurately and on time, and that you settle your Corporation Tax liabilities by the annual deadline.
Accounting for Corporation Tax
At the end of each Company financial year, your accountant will work out how much Corporation Tax you owe, and this amount must be set aside until payment is due. Many business owners set up a separate bank account to store future tax liabilities (also including VAT).
Unlike other taxes, the deadline for paying your tax liability falls before the date by which you must file your tax return.
Payment is due 9 months and 1 day after your company’s financial year end.
Your tax return must be submitted within 12 months of the year end date.
From April 2011 onwards, your Corporation Tax Return (CT600) must be submitted to HMRC online, and your tax payment must be made electronically. You can elect to pay via direct debit (the best option), Billpay, or bank transfer.