Understanding corporation tax is crucial if you run a limited company in the UK. Corporation tax is payable on company profits annually. Watch this guide or read below to get up to speed on how corporation tax works.
What is Corporation Tax?
Corporation tax is a tax levied on the profits made by limited companies registered in the UK. If your company turns a profit in a year, it must pay corporation tax based on that profit.
There are currently two rates of corporation tax:
- 19% for profits up to £50,000
- 25% for profits over £250,000
Between £50,000 and £250,000 profits, the rate is on a sliding scale that works out to 25% once you hit the £250,000 threshold. This aims to avoid penalising smaller companies.
Filing Your Corporation Tax Return
Your corporation tax liability is reported and paid to HMRC annually via your CT600 tax return, normally 9 months after your financial year-end. This will include your annual accounts that state your taxable profit. HMRC can investigate if they believe your calculation is inaccurate.
Paying Corporation Tax
Your accountant will advise the amount and deadline for payment based on your CT600. You can pay HMRC online easily. Consider paying in instalments if the final bill feels daunting. HMRC pays interest on early payments, so this can aid cash flow.
Reducing Your Corporation Tax Bill
There are legal ways to minimise your corporation tax bill:
- Claim all available tax reliefs and allowances
- Contribute to pensions – tax deductible for the company
- Optimise how you extract profits – salary, dividends, etc.
- If you own multiple companies, utilise lower rate allowances.
But don’t make business decisions just to chase tax savings. Focus on profitability and use tax planning to keep more of what you earn.
Navigating business taxes like corporation tax can be complex, but a good accountant guides you to maximise deductions, credits, and planning to lower your burden. If you need help understanding your corporation tax obligations or want to discuss minimising your company’s tax bill, I’m here to help.
Schedule a free 30-minute discovery call with me to review your current tax situation. We can identify any planning opportunities and make sure you stay compliant. Bring your most pressing questions!
Running a business is hard enough without tax headaches. Let me put my accounting expertise to work for you. The call and consultation is completely free with no obligation. Let’s talk tax!
