Introduction to Corporation Tax in the UK
Corporation tax is a tax on the profits of limited companies in the UK, including foreign companies with a UK branch or office, the tax is charged on the company's taxable profits, which include trading profits, investment income and capital gains.
The corporation tax rate in the UK is currently 19% for companies with profits of up to £250,000, and 25% for companies with profits over £250,000, companies must file a company tax return with HMRC and pay any tax due within 9 months and 1 day of the end of the accounting period.
Who Pays Corporation Tax
Corporation tax is paid by limited companies, including private limited companies, public limited companies, and foreign companies with a UK branch or office, partnerships and sole traders do not pay corporation tax, instead they pay income tax on their profits.
Companies must be registered with Companies House and have a unique tax reference number to pay corporation tax, the company's directors are responsible for ensuring that the company pays the correct amount of tax and files the company tax return on time.
Corporation Tax Rates and Allowances
The corporation tax rate in the UK is currently 19% for companies with profits of up to £250,000, and 25% for companies with profits over £250,000, there are also various allowances and reliefs available to companies, including capital allowances for plant and machinery, and research and development relief.
Companies can also claim relief for trading losses, and there are special rules for companies that are part of a group or have overseas income, companies should seek professional advice to ensure they are taking advantage of all the allowances and reliefs available to them.
How to Calculate Corporation Tax
To calculate corporation tax, companies must first calculate their taxable profits, which includes trading profits, investment income and capital gains, companies must then deduct any allowances and reliefs available to them, such as capital allowances and trading losses.
The resulting figure is the company's taxable profit, which is then multiplied by the corporation tax rate to give the amount of tax due, companies must also consider any other taxes they may be liable for, such as value added tax and payroll tax.
Penalties for Not Paying Corporation Tax
Companies that fail to pay corporation tax on time may face penalties and interest charges, the penalty for late payment of corporation tax is currently 3% of the tax due, and interest is charged on the outstanding amount at a rate of 3% per annum.
Companies that deliberately fail to pay corporation tax or file a false tax return may face more severe penalties, including fines and even prosecution, companies should ensure they are paying the correct amount of tax and filing their tax return on time to avoid these penalties.
Frequently Asked Questions
What is corporation tax in the UK
Corporation tax is a tax on the profits of limited companies in the UK, charged at a rate of 19% or 25% depending on the company's profits.
Who has to pay corporation tax
Limited companies, including private limited companies, public limited companies, and foreign companies with a UK branch or office, must pay corporation tax.
How do I calculate corporation tax
To calculate corporation tax, you must first calculate your taxable profits, then deduct any allowances and reliefs available, and multiply the result by the corporation tax rate.
What is the corporation tax rate in the UK
The corporation tax rate in the UK is currently 19% for companies with profits of up to £250,000, and 25% for companies with profits over £250,000.
What happens if I don't pay corporation tax
If you don't pay corporation tax, you may face penalties and interest charges, and in severe cases, fines and prosecution, so it's essential to pay the correct amount of tax on time.
Can I claim relief on corporation tax
Yes, there are various allowances and reliefs available to companies, including capital allowances, trading losses, and research and development relief, which can help reduce your corporation tax bill.