Running a limited company in the UK means you might need to submit a Company Tax Return and pay Corporation Tax on your profits.
Corporation Tax is a tax on the profits made by limited companies and other types of organisations, like members’ clubs or trade associations.
Profit is the total income left over after all business expenses have been deducted. Unlike sole traders or partnerships that pay Income Tax, limited companies pay Corporation Tax.
In this guide, we’ll break down the essentials of Corporation Tax, who needs to pay it, how to file, and some tips to potentially reduce your Corporation Tax bill.
For more on what limited companies can claim as an expense read here, and check out the ebook!
Don’t have time? Here’s the wrap-up of this article in less time it takes to eat a taco 🌮
▪ Corporation Tax: Tax on company profits, usually at 19% or 25% depending on profit size.
▪ Who Pays: Mainly limited companies. Sole traders and partnerships pay Income Tax instead.
▪ Filing Requirements: Even if your company makes a loss, you need to file a Company Tax Return.
▪ Deadlines: Pay Corporation Tax 9 months and 1 day after the accounting period. File your tax return within 12 months after the accounting period ends.
▪ Ways to Reduce Corporation Tax: Pay yourself a salary, claim all allowable expenses, capital allowances, and R&D tax relief.
▪ Rates: Basic profit rate is 19% for profits under £50,000; 25% for profits over £250,000. Marginal Relief applies to profits between these thresholds.
▪ Key Forms: Complete CT600 and include company accounts, computations, and supplementary documents.
▪ Associated Companies: Profit thresholds are adjusted if your company has associated companies.
Skip right to…
- What is Corporation Tax?
- 1- Who Needs to Pay Corporation Tax?
- 2- What Type of Tax Return Do I Need for Corporation Tax?
- 3- How to Register for Corporation Tax
- 3- What to Include in Your Company Tax Return
- 4- How to Submit Your CT600 and Company Tax Return
- 5- When to Submit and Pay Corporation Tax
- 6- How to Pay Your Corporation Tax Bill
- 7- Corporation Tax Rates
- 8- Marginal Relief Example
- 9- Associated Companies and Profit Thresholds
- 10- Ways to Reduce Your Corporation Tax Bill
- 11- Some Frequently Asked Questions
- Conclusion
What is Corporation Tax?
1- Who Needs to Pay Corporation Tax?
Corporation Tax typically applies to:
▪ UK-based limited companies making profits.
▪ Non-incorporated organisations like members’ clubs, societies, and trade associations.
▪ Housing associations and co-operatives that carry out business activities.
Who Doesn’t Pay Corporation Tax?
▪ Sole traders and partnerships pay Income Tax on their profits instead of Corporation Tax.
What Type of Tax Return Do I Need for Corporation Tax?
You’ll need to submit a Company Tax Return (CT600) if you run a limited company. This return informs HMRC of the profits made and how much Corporation Tax you owe.
2- What Type of Tax Return Do I Need for Corporation Tax?
You’ll need to submit a Company Tax Return (CT600) if you run a limited company.
This return informs HMRC of the profits made and how much Corporation Tax you owe.
Filing Requirements: Losses and Dormant Companies
▪ If Your Company Made a Loss: You still need to file your Company Tax Return to inform HMRC, even if no tax is due.
▪ Dormant Companies: You don’t need to submit a return for a dormant company, but you must notify HMRC of its dormant status; otherwise, penalties might occur.
3- How to Register for Corporation Tax
You’ll typically register for Corporation Tax when incorporating your business with Companies House. However, you can also register within 3 months of starting any business activity.
How to Register:
▪ Sign into your business tax account using your Government Gateway ID.
▪ Provide your company’s Unique Taxpayer Reference (UTR).
OMB Connect Top Tip: If you’re incorporation a limited company directly through Companies House, you’ll register for corporation tax at the same time.
3- What to Include in Your Company Tax Return
Your Company Tax Return must include:
▪ CT600 form: The primary document for reporting your profits and calculating Corporation Tax.
▪ Company accounts for the relevant financial year.
▪ Computations: Detailed calculations that support the figures on your CT600 form.
▪ Supplementary documents as necessary.
4- How to Submit Your CT600 and Company Tax Return
You can complete and submit your CT600 form online along with the necessary documents. You may also choose to hire an accountant to handle this process, but the ultimate responsibility for timely submission rests with you.
5- When to Submit and Pay Corporation Tax
▪ Filing Deadline: 12 months after the end of your company’s accounting period.
▪ Payment Deadline: 9 months and 1 day after the end of the accounting period. This means your payment is due before the filing deadline.
6- How to Pay Your Corporation Tax Bill
You can pay your Corporation Tax bill:
▪ Online or through online banking.
▪ Over the phone.
▪ At a bank branch (requires a paying-in slip from HMRC).
OMB Connect Top Tip: It’s always best to pay for your taxes and duties directly through your company’s government gateway.
Remember, if you’re paying through bank transfer, in branch or over the telephone you’ll need your corporation tax Reference number: a 17-character Corporation Tax payment reference number ending in ‘A’.
7- Corporation Tax Rates
| Type of Rate | Companies with Profits of: | Corporation Tax Rates of: |
|---|---|---|
| Small Profit Rate | Less than £50,000 | 19% |
| Marginal Relief | Between £50,000 and £250,000 | 19% to 25% |
| Main profit rate | More than £250,000 | 25% |
8- Marginal Relief Example
Your company has £70,000 in taxable profits.
The upper limit for Marginal Relief is £250,000.
Step 1: Calculate the difference: £250,000 – £70,000 = £180,000.
Step 2: Work out Marginal Relief: £180,000 x 0.015 (Marginal Relief fraction) = £2,700.
Step 3: Calculate Corporation Tax without Marginal Relief: £70,000 x 25% = £17,500.
Step 4: Deduct Marginal Relief: £17,500 – £2,700 = £14,800.
Effective Tax Rate: £14,800 / £70,000 = 21.14%.
Put away that calculator! You don’t have to do this manually. HMRC’s online filing portal, or dedicated accounts filing software will work out the rates for you based on the information you provide.
9- Associated Companies and Profit Thresholds
Companies are considered associated when they are controlled by the same person or group of individuals. This control can be direct, personal, or through their involvement in other corporate shareholders.
A company becomes an associated company of another if either:
▪ One of the companies controls the other, or
▪ Both companies are under the control of the same person(s).
Control can be established through a few different criteria:
▪ Percentage of Share Ownership: Having a significant shareholding in the company.
▪ Voting Power: Possessing the right to influence company decisions through voting rights.
▪ Any Other Rights: Including rights attached to company shares, such as the ability to appoint or remove directors.
▪ Entitlement to Assets on Winding Up: This includes having a claim on the company’s assets as a loan creditor if the company is wound up.
These factors help determine the nature of the relationship between companies and whether they qualify as associated.
If your company has associated companies, the small profit and main profit thresholds are divided by the number of associated companies.
10- Ways to Reduce Your Corporation Tax Bill
1- Pay Yourself a Salary: Salaries are considered allowable expenses, so they reduce your taxable profits. Read more about how to pay yourself as a limited company here.
2- Claim Allowable Expenses: Keep track of every business-related expense to claim tax relief. Read the company allowable expenses complete guide here.
3- Claim Capital Allowances: Deduct the cost of machinery and other long-term assets from your profits.
4- R&D Tax Relief: If your company undertakes research and development, you may qualify for additional tax relief.
11- Some Frequently Asked Questions
1. Should I include overseas profits on my CT600?
Yes, if your company is based in the UK, it is liable for Corporation Tax on all its profits, regardless of their origin. If tax is paid elsewhere, there might be a double-taxation agreement in place to avoid paying tax twice.
2. Is a Company Tax Return the same as submitting accounts?
No, the tax return goes to HMRC for calculating Corporation Tax, while the company accounts are filed with Companies House.
Conclusion
Understanding how to file your Company Tax Return and pay Corporation Tax correctly is essential for any UK limited company.
By keeping on top of deadlines, claiming allowable expenses, and possibly utilising Marginal Relief, you can manage your company’s tax responsibilities more effectively.
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Read the OMB Connect series on Corporation Tax to get all the information you’ll need to manage your own company’s affairs, from registration to preparing accounts and submitting the final corporation tax return.
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