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The Ultimate Guide to Corporation Tax: Everything You Need to Know

Welcome to the world of corporation tax – a place filled with numbers, rules, and regulations that can give even the most seasoned business owners a bit of vertigo.

In this broad and comprehensive guide, we’ll break down the fundamentals of corporation tax in a way that’s easy to understand and apply to your business. 

From figuring out if you need to pay to calculating your bill and exploring ways to minimise your tax liabilities, we’ll cover it all. 

Without further preamble, let’s jump in.

Who Has to Pay Corporation Tax?

First things first, let’s figure out who actually has to pay corporation tax. If you’re a limited company, a foreign company with a UK branch or office, or an unincorporated association like a club or co-op, then you’ll have to account for Corporation Tax. 

Whether you’ll actually have to ‘pay’ in the strictest sense of the word depends on whether you make a profit. 

Here’s a quick rundown of the types of businesses that need to pay up:

  • Limited companies: If you’ve registered your business as a limited company with Companies House, then you’re on the hook for corporation tax. This applies whether you’re a small startup or a big multinational.
  • Foreign companies: Got a branch or office in the UK? Then you’ll need to pay corporation tax on any profits that branch or office makes. Even if your main headquarters are overseas, HMRC still wants a slice of the pie.
  • Clubs, co-ops, and unincorporated associations: If your club or association is making a profit, then you might need to pay corporation tax. It depends on how you’re set up and what you’re using the profits for.

Calculating Your Tax Bill

How do you actually work out how much corporation tax you owe? It all comes down to your taxable profits. This means adding up all your income (trading profits, investment income, capital gains, etc) and then subtracting any allowable expenses and reliefs.

What counts as an allowable expense? At its most simple, any costs that are purely for business purposes. This can include things like:

  • Salaries, bonuses, and other staff costs
  • Rent, utilities, and property maintenance
  • Marketing, advertising, and promotional expenses
  • Travel and accommodation costs for business trips
  • Raw materials, equipment, and other supplies

It’s important to keep a clear record of all your income and outgoings – trust us, it’ll make your life a lot easier when it comes to tax time. Make sure you keep hold of receipts, invoices, and any other relevant paperwork.

There are also some expenses that you might think are allowable but actually aren’t. For example, you can’t claim back entertainment costs, like taking a client out for a fancy dinner. 

And if you’re using something for both business and personal purposes (like your phone or car), you can only claim the business portion as an expense.

Corporation Tax Rates (2024/25)

You’ve worked out your taxable profits – now what? Well, the amount of corporation tax you’ll pay depends on how much profit you’ve made. For the 2024/25 tax year, the rates are:

  • 19% for profits up to £50,000. This is called the “small profits rate”.
  • 25% for profits over £250,000. This is the “main rate”.
  • A gradual increase between the two for profits from £50,000 to £250,000. This is known as “marginal relief”.

It’s worth noting that these rates can change from year to year, so it’s always a good idea to check the latest figures on the gov.uk website.

If your business is part of a group (i.e., you have subsidiaries or sister companies), then you might need to do some extra calculations. The thresholds for the small profits rate and marginal relief are divided by the number of companies in the group. 

So, if you’ve got four companies in your group, each one will start paying the main rate on profits over £62,500 (£250,000 divided by 4) instead of £250,000.

When Do You Pay Corporation Tax?

One of the most common questions we get asked about corporation tax is “when do I actually have to pay it?”.

The key concept to understand here is your “accounting period“. This is the period of time that your corporation tax bill covers. For most companies, the accounting period is 12 months long, but it can be shorter (for your first period of trading, for instance) or longer (up to 18 months).

Your corporation tax payment deadline is usually 9 months and 1 day after the end of your accounting period. So, if your accounting period ends on 31 December, your corporation tax will be due on 1 October the following year.

It’s important to note that your accounting period is different from your company’s financial year (which runs from 1 April to 31 March). Many companies choose to align their accounting period with the financial year for simplicity, but you don’t have to.

If Profits Exceed £1.5 Million

If your company’s taxable profits exceed £1.5 million, you’re required to pay Corporation Tax in instalments. For a standard 12-month accounting period, the payment schedule is as follows:

  1. First instalment: Due 6 months and 13 days after the start of your accounting period.
  2. Second instalment: Due 3 months after the first instalment.
  3. Third instalment: Due 3 months after the second instalment.
  4. Final instalment: Due 3 months and 14 days after the end of your accounting period.

For example, if your accounting period begins on January 1, the instalments would be due on July 14, October 14, January 14 (of the following year), and April 14 (of the following year).

Please note that these thresholds are adjusted if your accounting period is shorter than 12 months or if your company has associated companies. Additionally, companies with taxable profits exceeding £20 million are subject to an accelerated instalment schedule.

It’s crucial to get your payment in on time. If you’re late, HMRC will charge interest and you might face penalties. If you’re really struggling to pay, contact HMRC as soon as possible – they might be able to arrange a payment plan.

Read our full guide to HMRC penalties and fines here.

Responsibilities for Directors

If you’re a company director, the buck stops with you when it comes to corporation tax. It’s your responsibility to ensure that your company:

  1. Keeps accurate accounting records. You need to keep track of all your income and expenses, and maintain clear, organised records. HMRC can ask to see your records at any time.
  2. Prepares and files its Company Tax Return (CT600). This needs to be done online, using HMRC-approved accounting software. The deadline is 12 months after the end of your accounting period.
  3. Pays its corporation tax on time. As we’ve seen, this is usually 9 months and 1 day after the end of your accounting period.
  4. Notifies HMRC of any changes. If there are any significant changes to your company (like a change of address, or if you start doing a different kind of business), you need to let HMRC know.
  5. Keeps HMRC informed about who the directors are. Whenever a new director is appointed or an existing one resigns, you need to notify HMRC.

As a director, you can delegate some of these tasks to other people (like your accountant), but the ultimate responsibility lies with you. If your company doesn’t meet its corporation tax obligations, you could face personal fines or even disqualification as a director.

It’s a big responsibility, but don’t panic. The key is to stay organised, keep good records, and seek professional advice if you’re unsure about anything. At Double Point, we’re always here to help. 

Self-Assessment for Directors

As a company director, you’ll usually need to file a personal Self-Assessment tax return alongside your company’s Corporation Tax return. 

This is because directors often receive income from their company in the form of dividends, which need to be declared on your personal tax return.

Here’s what you need to know:

  1. You need to register for Self-Assessment. If you’re a new director, you need to let HMRC know by registering for Self-Assessment. You can do this online, and you need to do it by 5 October in the second tax year after you become a director.
  2. You need to declare all your income. On your Self-Assessment return, you need to declare all your income, not just your director’s salary and dividends. This includes any other employment income, self-employment profits, rental income, and interest from savings.
  3. You might need to pay additional tax. If your total income is over the personal allowance (which is £12,570 for the foreseeable), you’ll need to pay income tax on the excess. The rate depends on which tax band your income falls into. You might also need to pay National Insurance contributions on your director’s salary.
  4. Dividends are taxed differently. Dividends are taxed at a lower rate than other income, but you only have a £500 tax-free dividend allowance as of April 2024. Above this, basic rate taxpayers pay 8.75%, higher rate taxpayers pay 33.75%, and additional rate taxpayers pay 39.35% on their dividends.
  5. The deadlines are important. Your Self-Assessment tax return is due by 31 January following the end of the tax year. 
  6. You might need to make payments on account. If your Self-Assessment bill is over £1,000, you’ll usually need to make ‘payments on account’ towards your next year’s bill. These are due on 31 January and 31 July.

Filing a Self-Assessment return can be complicated, especially when you have multiple sources of income. It’s important to keep good records throughout the year and to seek professional advice if you’re unsure about anything.

Expert Tips for Reducing Your Tax Bill

Now, we know what you’re thinking – how can I pay less corporation tax? Well, there are a few legitimate ways to reduce your tax bill. Here are some expert tips:

  1. Claim all your allowances and reliefs. There are numerous allowances and reliefs available that can reduce your taxable profits. For example, you might be able to claim capital allowances on equipment you’ve bought, or R&D relief if you’re doing innovative work. Make sure you’re claiming everything you’re entitled to.
  2. Make the most of tax-free allowances. Some types of income are tax-free up to a certain amount. For example, from 6 April 2024, you can earn up to £500 in dividends before you start paying tax on them. If you’re a director, you might want to pay yourself a mix of salary and dividends to take advantage of these allowances.
  3. Plan ahead. Think about the timing of your income and expenses. If you’re near the threshold for a higher tax rate, you might want to defer some income into the next tax year, or bring forward some expenses. A bit of forward planning can make a big difference.
  4. Get professional advice. Tax can be complicated, and there are lots of nuances and exceptions. If you’re not confident doing it yourself, it’s worth getting advice from an accountant or tax professional. 

How to Submit Your Corporation Tax Return: Where, When, and How

Your Corporation Tax return (CT600) must be submitted to HMRC, not Companies House. 

Many business owners assume these filings are the same, but they serve different purposes:

  • HMRC – Handles your Corporation Tax return and calculates your tax liability.
  • Companies House – Manages your company’s financial statements and ensures compliance with corporate reporting rules.

While some accounting software allows you to file both at the same time, they are technically separate submissions.

So What Gets Submitted to Companies House?

Companies House requires you to file your annual accounts, which provide a financial description of your business. Depending on your company’s size, you may need to submit:

  • Full accounts (for large companies) – Includes a profit and loss account, balance sheet, directors’ report, and auditor’s report.
  • Abridged accounts (for small companies) – A simplified version with a balance sheet and limited disclosures.
  • Dormant company accounts (if no trading activity occurred during the year).

Annual accounts must be submitted to Companies House within 9 months of the end of your company’s financial year.

While Companies House only requires financial statements, HMRC needs more detailed information.

If you’re using compatible accounting software, you can submit your annual accounts and Corporation Tax return together, but they are technically separate filings with different deadlines.

How Do You File Your Corporation Tax Return?

Most companies must file their Corporation Tax return online, either using:

  • HMRC’s online service – Suitable for straightforward returns but limited in functionality.
  • Accounting software – Required if you’re filing both Corporation Tax and Companies House accounts at the same time or have a more complex financial setup.

To file, you’ll need:

  • Your company’s annual accounts (prepared before submitting your return).
  • A Government Gateway account to access HMRC’s filing system.
  • Your Unique Taxpayer Reference (UTR) issued by HMRC.
  • Your Companies House authentication code (if submitting accounts at the same time).

Six Things You Need to Know About Corporation Tax

Now that we’ve covered the basics, let’s dive into some of the finer points of corporation tax. 

These are the things that can really make a difference to your tax bill – the insider tips, the clever tricks, and the easily overlooked details.

  1. You can deduct pre-trading expenses. If you incurred costs before your company started trading (like legal fees or market research), you might be able to deduct these from your first year’s profits.
  2. You can claim back overpaid tax. If you think you’ve paid too much corporation tax, you can make a claim to HMRC to get it back. You have four years from the end of the accounting period to make a claim.
  3. You might need to make instalment payments. If your company’s taxable profits are over £1.5 million, you’ll need to pay your corporation tax in instalments rather than in one lump sum.
  4. You can get relief for losses. If your company makes a loss, you might be able to claim relief by offsetting the loss against other gains or carrying it forward to set against future profits.
  5. You need to keep records for six years. HMRC can investigate your company’s tax affairs going back up to six years, so it’s important to keep your records for at least this long.
  6. You can get a deduction for charitable donations. If your company makes donations to charity, you can deduct these from your taxable profits.

Get Help With Double Point

At Double Point, we know that corporation tax can be a headache. That’s why we’re here to help. 

Our team of expert accountants can take care of everything for you – from calculating your profits to claiming your allowances to submitting your tax return.

We don’t manage the numbers. We’ll also provide expert advice and guidance on how to optimise your tax position. We’ll help you plan ahead, make the most of allowances and reliefs, and keep you up to date with the latest changes in tax law.

So, if you want to take the stress out of corporation tax, get in touch with us today. We’ll make sure you’re paying the right amount of tax – not a penny more, not a penny less.

Discover how Double Point can help you with a free consultation.

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