Corporation tax is one the most important taxes a small business will pay.
This article provides a brief guide on corporation tax, how to calculate it and when to pay.
What is Corporation tax?
It is the tax that all limited companies must pay against the profits that the company makes. Profits are surplus income after deductible costs and expenses, overheads, salaries, and any other costs incurred in operating the business.
Who pays Corporation tax?
All limited companies are liable for corporation tax which is aligned to the financial year of the business and not the tax year. There are some exceptions such as when starting a new business. Along with being payable on the profit of the business, corporation tax is also payable on any money the business makes from investments or the sale of capital assets for more than they cost- known as chargeable gains.
Corporation tax is paid on the profits made in the UK and abroad if the company is based in the UK, or just its UK profits if the headquarters of the organisation is based in a different country.
How much is Corporation tax?
Corporation tax is currently set at 19% on all profits for the 2019/2020 and 2020/2021 tax years. To calculate your business's corporation tax, simply multiply your business profit for the year by 19%.
Corporation tax rates can change each year which is important if your company tax year is different and runs over the end of the year tax year. If the financial year-end of the business differs from April, you'll need to pay corporation tax for the period up to the date that the corporation tax rate changed, then calculate the corporation tax due at the new rate for the remainder of the company's financial year.
It is extremely important that you keep accurate records of all your business income, expenses, and deductible costs. This is a legal requirement for all directors of limited companies. It is recommended that you engage a professional accountant to assist you with this legal obligation.
How do you pay Corporation Tax?
Once your register your company as a limited company you must also register for corporation tax with HMRC. You are required to do this within 3 months of the date of incorporation of the company unless the company is deemed to be dormant.
The company will be issued with a unique taxpayer reference (UTR). Once registered you will then be able to sign in and report your corporation tax. Corporation tax is payable within 9 months of the end of its financial year-end.
If your business earns over a certain threshold you'll be required to pay in instalments. The actual filing of the corporation tax return needs to be filed with HMRC within 12 months of the year even though the amount due is payable within 9 months of the year-end.
If you should require help with registering, preparing, calculating, and submitting your corporation tax return, please get in touch with Ekstra Accounting Solutions via email
Email: contactus@ekstraas.co.uk Tel: Janet Jensen 07458 302 512
Website: www.ekstraas.co.uk