If you run a business, do you have to pay Corporation Tax? And if so, when and how do you pay it?
This is your essential guide to Corporation Tax. Find out if you have to pay it, and get some practical guidance on how to manage your obligations.
What is Corporation Tax?
It’s a tax for businesses, payable against all the profits your business makes. You pay this tax on any money that’s left over after you’ve taken into account deductible costs and expenses, as well as overheads like salaries and supply costs.
That’s all the money your business makes on trading, investments, and selling assets. And if you’re based in the UK, you pay Corporation Tax on all profits, whether you make them at home or abroad.
The name’s slightly misleading. “Corporation Tax” suggests that the tax is only for “corporations”. And when most people hear the word “corporations”, they tend to think of large, multinational companies.
But the truth is, almost all businesses have to pay Corporation Tax.
Who Needs to Pay Corporation Tax?
Here’s who’s eligible for Corporation Tax:
- All limited companies.
- Overseas companies with UK branches or offices.
- Unincorporated associations, such as clubs and co-operatives.
Learn more about how the government defines unincorporated associations here.
What is the Corporation Tax Rate?
At the time of writing, the Corporation Tax rate for company profits is 19%.
You always pay Corporation Tax at the rate that applied during your business’s relevant accounting period. This is the time covered by your company tax return. For most businesses, the Company Tax accounting period is identical to the financial year covered by your standard annual accounts. This period can’t be longer than 12 months. If your accounting period spans for longer than 12 months, you’ll have to file two separate tax returns.
It’s possible for more than one Corporation Tax rate to apply during your accounting period. If this is the case, you’ll have to calculate the number of days each individual rate applied before working out the tax due for each.
How to Pay Corporation Tax
Unlike other forms of tax, you don’t get a Corporation Tax bill. Instead, all businesses have to follow a set process in order to calculate, pay, and report their Corporation Tax:
- Register for Corporation Tax. If you haven’t done this already, head here to do just that.
- Keep detailed accounting records over the course of your 12 month accounting period.
- Use these records to prepare a company tax return.
- Pay your Corporation Tax by your deadline, which is usually nine months and one day after the end of your accounting period. Head here to pay your Corporation Tax bill.
- File your company tax return. The deadline for this is 12 months after the end of your accounting period. Head here for more information.
You might find that you don’t actually owe any Corporation Tax. Even if this is the case, you still have to inform HMRC. If you don’t, they’ll keep sending you payment reminders, which could ultimately trigger a costly and time-consuming investigation. And if you’ve nothing to pay, you still have to file your company tax return.
You can report that you have nothing to pay through filling in a “nil-to-pay” form. Find it here.
Corporation Tax for Freelancers, Contractors, Sole-Traders and Self-Employed Workers
If you’re a sole-trader, a freelancer or a contractor, you only have to pay Corporation Tax if you register as a limited company.
Should you register your business as a limited company? Head here for more information.
But even if you’re not eligible for Corporation Tax, it’s still worth safeguarding your business against costly tax investigations, and other potential risks.
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