Corporation Tax is a necessary evil when it comes to running a limited company. To pay the right amount of Corporation Tax, you’ll need accurate financial records so that the information you provide in your company tax return is correct.
Who has to file a company tax return?
Limited companies must submit a company tax return once HMRC sends a ‘Notice to deliver a tax return’. Even if your company hasn’t made any profits this year, or if no Corporation Tax is due, you still need to submit a return.
Limited liability partnerships (LLPs) don’t normally need to file a company tax return, though they might if they are:
- Not conducting business in order to make a profit
- Being wound up by court order
- In liquidation
Sole traders (and individual partners in partnerships) don’t pay Corporation Tax, and don’t need to submit a company tax return. But, as the saying sort-of goes, tax is inevitable, so you’ll still need to declare your earnings and pay tax by completing a Self Assessment.
Whilst you are legally allowed to complete your company tax return yourself, they can be incredibly confusing, and lots of companies prefer using an accountant to help them.
When do I need to pay my Corporation Tax bill?
The deadlines for paying your Corporation Tax and filing a company tax return are not the same, and your payment deadline depends on how much you owe.
- If your taxable profits are £1.5 million or less, the deadline to pay your Corporation Tax bill is 9 months and 1 day after the end of the accounting period that it covers.
- You’ll need to pay your Corporation Tax bill in instalments if your taxable profits are more than £1.5 million.
Your accounting period is usually the same as the financial year covered by your company’s yearly accounts. Sometimes these are different, such as if you’re still in your first year of trading. If this is the case, you’ll need to submit two tax returns to cover your first year.
How much will I need to pay once I’ve submitted my company tax return?
Corporation Tax is chargeable at a fixed rate of 19% on any taxable profits that a limited company makes. There aren’t any tax-free thresholds or varying rates like you get with personal income tax. However limited companies can, where applicable, claim for allowable deductions and expenses that can help lower their bill.
What does a company tax return show?
Your company tax return should clearly show the profit (or loss) your company has made for the purposes of Corporation Tax. This isn’t the same as profit or loss displayed in your annual accounts, because your tax return deals with taxable profits.
How do I submit a company tax return?
Assuming you don’t need an auditor (and small companies usually don’t), you can go online to file your tax return with HMRC and your accounts with Companies House at the same time. The paper CT600 is only available if you’re not able to submit an online return, or if you wish to submit a return in Welsh.
You will also need to submit the accounts and computations section of the tax return in the Inline eXtensible Business Reporting Language (iXBRL) format. If this all sounds rather daunting, HMRC have published a CT600 Guide which you may find useful. And of course, you can always seek professional help rather than simply trying to go it alone!
Making Tax Digital for Corporation Tax
HMRC are also in the process of rolling out a new scheme for recording and submitting tax records, known as Making Tax Digital (MTD). The plans for MTD for Corporation Tax are still underway, but you can track the scheme’s progress at our MTD information hub.
What accounting records must I keep for Corporation Tax purposes?
Your financial records show all of the company’s transactions and the health of the business, and are crucial for helping you complete your tax return correctly. You should keep records even if you don’t make a profit, stop trading, or don’t need to submit a tax return.
- Details of any company assets, such as equipment or vehicles. This includes the purchase or disposal of assets too.
- Details of any stock that’s still in the company’s possession at the end of the financial year.
- The company’s income and expenditure, its costs, and any liabilities (such as any loans it’s repaying, or staff costs). This also includes your director’s loan account.
Having your bookkeeping in good order will allow you to file your company tax return accurately and on time, without having a full-blown meltdown of stress and confusion. It also means you can calculate your tax bill as you go, making it easier to plan your cash flow.
As well as listing each transaction, it’s useful to keep any documents that go with your records, such as receipts or invoices, and mileage logs. And yes, we’re big fans of keeping documents digitally!
Will I get fined if I file my company tax return late?
Unfortunately, yes. And if it’s extremely late, you could even end up being prosecuted. These are the penalties you can expect for not filing on time.
|How late is your return?||Penalty|
|One day late||£100|
|Three months late||A further £100|
|Six months late||HMRC will make an estimation of what your Corporation Tax bill should be. An extra 10% of the bill will then be added as a penalty.|
|12 months late||An additional 10% of the tax liability is added.|
How do I pay my Corporation Tax bill to HMRC?
For companies with taxable profits of up to £1.5 million, the payment deadline is 9 months and one day after your accounting period has ended. You can pay online, through telephone banking, or using CHAPS or Direct Debit.