Understanding corporation tax in the UK can seem daunting- not only is it complicated, but it’s also different for every business. This article aims to provide an in-depth analysis of corporation tax in the UK, what it is, how much it costs, and how it will affect your business.
What Is a Corporation Tax
In the UK, corporation tax is a levy charged on profits from limited companies and other legal entities. The government uses corporation tax to raise revenue for public spending, so it’s an integral part of the country’s tax system.
How Much is the Corporation Tax in the UK
The corporation tax rate in the UK has been set at 19% since 1st April 2017, which means that any company with profits below £300,000 will be taxed at 19%, and any company with profits above £300,000 will be taxed at 20%.
But starting April 2023, the corporation tax will be levied at two different rates: 25% on profits up to £250,000 and 19% on profits below £50,000. The government has set these rates to encourage businesses to invest and grow.
If your business profits are between the upper and lower limits, you will have to pay for the 26.5% marginal rate (with the marginal relief benefits).
Who Needs to File for a Corporation Tax in the UK
If your company is based in the UK, you’ll need to file a corporation tax return annually. This return must be filed with HM Revenue & Customs (HMRC) and done online.
If you are a sole trader or in a partnership, you will not need to file a corporation tax return, as your business is not considered a separate legal entity from yours. However, you may still need to pay income tax and National Insurance on your business profits.
Aside from UK limited companies, other organisations also pay the corporation tax. This includes membership organisations, housing associations, cooperatives, clubs and societies.
You will need to pay the corporation tax due if your business is profitable. You can only take advantage of this tax relief if you earn profits instead of losses. You can be given cash rebates and tax credits each year, but they will only be paid out to you if you have made profits in that particular year. You will also need to pay any taxes that are due on dividends that you paid out to shareholders during the year.
If you do not file for a corporation tax, you cannot claim any tax relief. Also, if your business is not making enough money to pay the corporation tax, then you may end up paying an additional HMRC income tax too.
When Do You Need to File for Corporation Tax in the UK
Unlike any other filing of taxes, the deadline for paying the corporation tax should be before you file your company tax return. So, the date depends on the corporation’s tax accounting period.
For instance, if your accounting period ends on December 31, you have to pay the corporation tax nine months and one day after the end of the accounting period, which is 1 October.
Filing a corporation tax return can be complex, so it’s essential to seek professional help if you’re unsure about anything. An accountant or tax advisor will be able to help you ensure that you’re complying with the law and that you’re paying the correct corporation tax liability.
Corporation tax is a vital part of the UK tax system, and it’s crucial that businesses understand how it works. We hope this article has given you a good overview of the basics of corporation tax and how it applies to businesses in the UK.
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