Limited companies pay Corporation Tax on their profits.
The rate has been 19% for many years but this changed on 1 April 2023. From this date, small businesses with profits of less than £50,000 will continue to pay at 19%. Businesses with profits between £50k-£250k will be subject to a tapered rate working out at between 19% and 25% and businesses with profits in excess of £250k will pay at 25%.
Another thing to consider is whether the company has any associated companies. If it does, then the thresholds for the CT rates are reduced depending on how many there are. So if there are 4 companies all associated for tax purposes, the £50k lower threshold is divided by 4 and each company would only be able to have profits of £12,500 before going to the higher rate.
You need to register with HMRC within 3 months of starting to trade.
Full year end accounts along with form CT600 and a tax computation, need to be filed with HMRC within 12 months of the year end. Payment of Corporation Tax is due 9 months and one day after the year end.
You’ll have to pay penalties if you do not file your Company Tax Return by the deadline as follows:
Time after your deadline | Penalty |
1 day | £100 |
3 months | Another £100 |
6 months | HM Revenue and Customs (HMRC) will estimate your Corporation Tax bill and add a penalty of 10% the unpaid tax |
12 months | Another 10% of any unpaid tax |
If your tax return is late 3 times in a row, the £100 penalties are increased to £500 each.
Corporation Tax is calculated on your profits not on your turnover.
Any losses made can either be carried forward to use against future profits of the same trade, or carried back for the proceeding 12 months which may result in a Corporation Tax repayment.
You can only claim for the expenses you incur wholly and exclusively during the everyday running of your business.
There are strict rules regarding what is and what isn’t allowable for Corporation Tax purposes.
The following are some costs which people often think are allowable but they aren’t (this lists only a few of the main ones):
1. Income paid as dividends – salary paid by a company is a tax-deductible expense, dividends are not.
2. Entertaining clients – the cost of wining and dining clients is not an allowable expense. Entertaining employees, however, is.
3. Gifts to clients – So long as the gift in question has a cost of less than £50 and incorporates a clear advertisement of your business or brand, it should qualify as a tax-deductible expense. That said, there are a couple of other conditions that apply to this scenario:
- The expense must be less than £50 for any one client/customer during the financial period it relates to. In other words, you cannot give more than one gift of up to £50 to any one client/customer and expect tax deductions for each
- As per HMRC guidelines, the advertisement appears on the gift itself and not just on the packaging
- The gift cannot include any tobacco, food, drink, or any exchangeable vouchers
4. Fines and penalties – you can’t claim them against tax even parking fines or speeding tickets whilst on Company business.
