What is Corporation Tax and How Might it Affect You?
Does your company or organisation have to pay corporation tax? Make sure you understand the rules, as the penalties for non-compliance can be high.
Corporation tax is one of those things that everyone has heard of, most people have a vague idea about and hardly anyone can really explain.
If you operate a business in the UK, you need to have a handle on your corporation tax obligations, as failure to pay what you owe will leave you liable to fines that will mount up by the day.
The following guidance notes will help you to understand what corporation tax is, who has to pay it, what your liabilities are, and how to make sure you are in compliance.
What is corporation tax?
Corporation tax is a tax on the profits generated by a business or organisation. The current rate of corporation tax for company profits is 19 percent.
Who has to pay corporation tax?
All UK companies are required to pay corporation tax on their profits. This is the case even if those profits were generated outside the UK. If you run an unincorporated body, such as a sports club or voluntary group, and it starts trading and generating a profit, this will also be liable for corporation tax in exactly the same way.
What about non-UK companies?
A non-UK based company that merely has a presence in the UK, for example through a branch or satellite office, only has to pay corporation tax on those profits generated by UK activities.
How do you register?
When you set up a company via Companies House, you will be issued a unique taxpayer reference number. You can use this to register online for corporation tax, or do it the old fashioned way using form CT41G.
When must you pay?
Corporation tax becomes due nine months and one day after you file your tax return. So for the majority of businesses, this means you must pay it on 01 January.
How much do you have to pay?
Your accountant will be able to offer business-specific information here, but in essence, you need to establish the company’s pre-tax profits for the financial year, and apply the relevant tax rate. The profit figure may not be adjusted for depreciation, but you are permitted to take off capital allowances and some other reliefs.
What if you break the rules?
The onus is on you to tell HMRC that your company is liable for corporation tax. If you fail to do so, the company could be faced with a penalty. This is based on the amount of tax for which the company is liable, known as the potential lost revenue (PLR). There is a sliding scale, from no penalty at all, where there is a reasonable explanation, to 100 percent of the PLR if you have deliberately evaded the tax and attempted to conceal the liability.
There are other penalties for failing to deliver a tax return on time, or providing inaccurate records.
Corporation tax is a specialist area, and one that should be handled by a professional accounting firm. They will be able to help keep your tax liabilities to a minimum, while ensuring that you are fully compliant and not exposed to penalties and fines.