As a limited company owner, your company is liable to pay Corporation Tax on its profits. All UK companies are liable to pay tax on their profits, regardless of where in the world these profits were accumulated. We have put together this guide for your to understand what corporation tax is, how to account for it, be able to calculate it and the corporation tax rates and allowances.
How are company profits taxed?
Over the past decade, the rates of Corporation Tax have fluctuated, and the current corporation tax rate payable by the vast majority of company owners – the ‘small profits rate’ – is 19% (2021/22 tax year). This rate applies to companies that make profits of £300,000 or less per year.
Above this point, between £300,000 and £1.5m, companies can reclaim ‘marginal relief’, and beyond that, the main rate of Corporation Tax applies, which is currently 19%.
In the Spring 2021 budget, the government announced that the corporation tax rates will be frozen until 2023. From 2023 the rate will increase to 25%, and only businesses with over £250,000 profits pay this higher rate. Businesses with a profit of £50,000 and less will continue to pay 19%.
You can find out how much tax you owe instantly, with our online Corporation Tax calculator.
Registering for Corporation Tax
When you set up a new limited company, you are legally obliged to tell HMRC that you are liable to pay tax, and file a tax return each year, regardless of whether or not the company is expected to make any profits or not.
After setting up a company via Companies House, you will automatically be sent Form CT41G, which collects your new company details, which should be returned to the local Corporation Tax office right away.
Unless you’re an accounting expert yourself, you will need to appoint a qualified accountant to deal with your tax affairs on your behalf, using Form 64-8 (or via the online authorisation service).
It is important to note that as a company director, you are ultimately responsible to ensure your tax returns are completely accurate and on time and that you settle your Corporation Tax liabilities by the annual deadline.
Accounting for Corporation Tax
At the end of each Company financial year, your accountant will work out how much Corporation Tax you owe, and this amount must be set aside until payment is due. Many business owners set up a separate bank account to store future tax liabilities (also including VAT).
Unlike other taxes, the deadline for paying your tax liability falls before the date by which you must file your tax return.
Payment is due 9 months and 1 day after your company’s financial year-end.
Your tax return must be submitted within 12 months of the year end date.
Your Corporation Tax Return (CT600) must be submitted to HMRC online, and your tax payment must be made electronically. You can elect to pay via direct debit (the best option), Billpay, or bank transfer.
Corporation tax rates 2020/21
|
2018/19 |
2019/20 |
2020/21 |
2021/22 |
|
|
Percentage |
20% |
19% |
19% |
19% |
|
Profits below |
£300,000 |
£300,000 |
£300,000 |
£300,000 |
|
Profits above |
£300,000 |
£300,000 |
£300,000 |
£300,000 |
You can visit HMRC’s Corporation Tax pages here. including information on how to pay your Corporation Tax bill
Further Information
More on limited company tax.
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