Understanding the Basics: Corporation Tax

For new and growing businesses, navigating the corporate tax landscape can feel like deciphering a complex puzzle. But don't fret! In this blog, we're breaking down the essentials of corporation tax, making it easy to understand who needs to pay, what rates apply, and when those crucial deadlines are. ​

Corporation tax is a tax that companies pay on their profits. It applies mainly to limited companies but can also affect some other types of organisations.  ​

For periods covering up until the beginning of April 2023 the corporation tax rate in the UK was a flat rate of 19%. For accounting periods after 1 April 2023 the rates have changed. ​

Now, the corporation tax rate isn't a fixed number – it changes depending on how much profit the company makes - there are different rates for smaller and larger profits, with some middle ground in between. ​

Here is an example to help you calculate how much you need to pay your corporation tax bill.​

Let's say your UK limited company, "Tech Solutions Ltd.", has a total income of £200,000 in the financial year ending 31st March 2024. After deducting allowable expenses like salaries, rent, and supplies, your taxable profit is £120,000.​

Calculation:​

Since your profit falls within the marginal relief band (£50,001 to £250,000), the calculation will involve multiple steps:​

Therefore, Tech Solutions Ltd. would owe £28,050 in corporation tax for the financial year ending 31st March 2024.​

If your accounting period spans 1 April 2023 (for example, from 1 January 2023 to 31 December 2023), your profits will be split between the old and new corporation tax rates. Specifically, 3/12 of your profits (for the period before 1 April) will be taxed at the old rate of 19%, and the remaining 9/12 will be taxed at the new rate.​

You must pay corporation tax on profits if you are doing business through:​

Sole traders and partnerships are not liable for corporation tax, they’ll pay income tax on their profits or their share of the profits.​

It’s often the case that when you register your limited company with Companies House, you register for corporation tax at the same time. Otherwise, you can choose to register via post, through an accountant (e.g. Beany) , or online. ​

To register for corporation tax, you’ll need:​

Contact Beany if you wish to know more about corporation tax and its registration or head to HMRC’s website for more information on registering for corporation tax.​

There are a few dates you need to remember: ​

For example, if your company's financial year ends on 31st December 2023, the dates below are your deadlines:​

If you're unsure of your specific deadlines, consult with your accountant or HMRC directly.​

Read more: Key tax year dates for UK businesses​

You can choose to pay your corporation tax through one of the following ways:​

If the payment due date falls on a public holiday or weekends, it’s your responsibility to make sure the payment clears before the deadline. If you miss the deadline, you may need to pay an interest on your bill.​

Unlike individuals, companies don't get a tax-free amount of profit, but you could claim some of the business-related expenses to reduce your corporation tax bill. These expenses include:​

It's important to note that not all expenses are allowable for corporation tax, for example,  entertaining clients or fines are not deductible. If you’re unsure, always consult with your accountant.​

Read more: Life hack: save time with this checklist for business expenses (free download)​

Corporation tax relief is somewhat similar to corporation tax allowance, it can substantially reduce a company's corporation tax bill, freeing up funds for investment and growth. Some examples are:​

Head to HMRC’s website for more information on corporation reliefs.​

Need a hand navigating the ins and outs of corporation tax? Whether you're unsure about if you need to pay, what to pay, or simply want some expert advice, our friendly team at Beany is here to help. We'll make sure you're getting it right, every time. Register today. ​