A Guide to Corporation Tax in the UK

Running a small business is all about chasing your entrepreneurial dreams. But alongside the thrill of building something from the ground up comes the responsibility of managing your finances effectively. This includes understanding your tax obligations, and a key player in that game is corporation tax.

What is corporation tax?

Corporation Tax is a business tax levied on the profits generated by your limited company. In simpler terms, it’s a portion of your company’s earnings that you’ll need to pay to the UK government.

Why is corporation tax important?

Corporation Tax is a vital source of income for the UK government, funding essential public services like healthcare, education, and infrastructure. By paying your fair share, you’re contributing to the country’s well-being and ensuring everyone benefits from a thriving economy.

How much corporation tax do I need to pay?

The current rate of corporation tax in the UK (as of April 2024) is a flat rate of 19% for most companies. This applies to your taxable profits, which is your total income minus allowable business expenses. There are some exceptions to the flat rate, such as ring fence companies operating in specific industries like oil extraction. These companies may have different tax rates. It’s always best to consult with an accountant if you’re unsure about your specific situation.

When to pay corporation tax in the UK

The deadline for paying corporation tax depends on your company’s taxable profits:

Profits up to £1.5 million

You have nine months and one day after your accounting period ends to make a full payment.

Profits over £1.5 million

Corporation tax must be paid in quarterly installments. The first payment is due six months and 13 days after the accounting period begins, with subsequent installments following three months later.

Here is an example:

If your accounting period ends on December 31st, 2023:

• Profits under £1.5 million: The payment deadline is September 30th, 2024.
• Profits over £1.5 million:
  • First installment: June 13th, 2024
  • Second installment: September 13th, 2024
  • Third installment: December 14th, 2024 (following the end of your accounting period)
  • Final installment: March 31st, 2025

Corporation tax return deadlines

Remember, corporation tax payment deadlines differ from filing deadlines. You must submit your corporation tax return by the statutory filing date, which is typically 12 months after your accounting period ends. However, HMRC (the UK tax authority) might extend this deadline by three months if you receive a notice to deliver a return. It is important to note that even if you have no corporation tax to pay, you still need to file a return by the statutory filing date.

Payment vs Filing deadlines

Here’s a table summarizing the key differences:

Corporation tax rates in the UK (2024)

The current corporation tax rate in the UK is a flat rate of 19% for most companies.

Key considerations for filing corporation tax returns

Record keeping

Maintaining precise and thorough records is essential for completing your corporation tax return accurately. This includes sales invoices, receipts, bank statements, and expenses.

Utilizing accounting software

Leveraging accounting software can simplify the record-keeping process and ensure all transactions are tracked correctly. OneMoneyWay provides integrated financial management tools to help you stay on top of your business finances.

Penalties for late filing and payment

Failing to meet corporation tax deadlines can result in significant penalties. The longer the delay, the higher the penalties and interest charges. It’s vital to mark these dates on your calendar and set reminders well in advance.

Tips for managing corporation tax effectively

Maintain accurate records

Keep meticulous records of your income and expenses throughout the year. This simplifies calculating your taxable profits and filing your return. When it comes to Corporation Tax, meticulous record-keeping is your best friend. It might seem like a tedious chore, but it saves you a world of stress and potential headaches down the line. Here’s why accuracy is key:

• Taxable profits: Corporation Tax is levied on your taxable profits, not your total income. By meticulously tracking your income and expenses, you can accurately calculate this figure. This ensures you pay the correct amount of tax and avoids any discrepancies with HMRC.
• Supporting your calculations: When filing your corporation tax return, HMRC might request documentation to support your income and expense figures. Having organized records readily available allows you to quickly provide this information, eliminating delays and potential enquiries.
• Filing Made Easy: Tax season can be a whirlwind, but with good record-keeping, compiling your corporation tax return becomes a breeze. Organized records allow you to easily categorize income and expenses, saving you time and frustration.
• Peace of Mind: Knowing your records are accurate and readily accessible provides peace of mind. If HMRC ever selects you for a random audit, you’ll be prepared to demonstrate the legitimacy of your tax calculations.

What records should you keep?

Here’s a breakdown of some key records to maintain for Corporation Tax purposes:

• Sales invoices: Keep copies of all invoices issued to your customers.
• Purchase receipts: Store receipts for all business-related purchases.
• Bank statements: Maintain electronic or paper copies of your business bank statements.
• Payroll records: If you have employees, keep detailed records of salaries, bonuses, and any tax deductions made.
• Asset records: Track the purchase and disposal of any business assets, including depreciation schedules.

Making record-keeping easier

• Accounting software: Invest in user-friendly accounting software that streamlines your record-keeping process. Many offer features for categorizing income and expenses, generating reports, and simplifying tax calculations.
• Cloud storage: Utilize cloud storage solutions to securely back up your digital records. This ensures you have easy access to them from anywhere and protects them from accidental loss.

By maintaining meticulous records throughout the year, you’ll be well-equipped to handle Corporation Tax deadlines and ensure your business remains compliant with HMRC regulations.

Plan for corporation tax

Factor in corporation tax when budgeting to avoid cash flow issues when deadlines approach.

Consider using an accountant

An accountant can provide expert guidance and ensure you comply with all regulations.

Set up payment reminders

Utilize calendar reminders or accounting software to ensure you don’t miss deadlines.

Corporation tax deadlines can be a significant financial burden for businesses. To avoid penalties and interest charges, it’s essential to implement a strategic reminder system. Low-tech solutions include calendar alerts, sticky notes, accounting software reminders, and online calendar apps. To optimize the system, set up multiple reminders at different intervals, make reminders specific and actionable, and ensure team communication. By implementing a well-designed reminder system, businesses can stay on top of deadlines and remain compliant with HMRC regulations. A little planning can help avoid penalties and maintain healthy finances. Ultimately, a well-designed reminder system can help businesses stay on top of their tax obligations and stay on top of their finances.

OneMoneyWay: Your Business Finance Partner

While this guide focuses on corporation tax deadlines, managing your business finances effectively goes beyond tax obligations. OneMoneyWay can be your one-stop solution for a variety of business banking needs:

• Business Account: Open a business account online quickly and easily, eliminating the hassle of traditional banks.
• Payment Processing: Accept and send payments seamlessly, both domestically and internationally.
• Currency Conversion: Manage foreign exchange transactions efficiently with competitive rates.
• SEPA and Swift: Make and receive international payments securely through established networks.

OneMoneyWay empowers you to focus on running your business while we handle the financial complexities.

Understanding and adhering to corporation tax deadlines is crucial for maintaining your business’s financial health. With OneMoneyWay, you can manage your business accounts effortlessly and ensure all your financial operations are streamlined. Visit our website to learn more about how we can support your business growth.

FAQs

Can I get an extension on the corporation tax filing deadline?

You can request an extension from HMRC, but they may not always grant it.

When are tax returns due?

Tax returns must be filed 12 months after the end of your accounting period. For most companies, this means filing by the end of the following financial year.

What happens if I miss the corporation tax payment deadline?

If you miss the payment deadline, you may face penalties and interest charges. It’s important to pay on time to avoid these additional costs.

Can OneMoneyWay help with tax preparation?

While OneMoneyWay provides tools for managing your business finances, we recommend consulting with a professional accountant for specific tax preparation and advice.

Do I need to file a corporation tax return if my company made no profit?

Yes, all active companies must file a corporation tax return, even if they made no profit or have no corporation tax to pay.