Corporate tax is a tax levied by the government on the profits companies, and businesses make. The amount of corporate tax to be paid depends on several factors, including the size and nature of your business.
In the UK, all limited companies are required to pay corporation tax on their taxable profits. This includes profits from trading activities, investments, and rental income.
The current rate of Corporation Tax In The UK is 19%. However, this rate is set to decrease gradually over the next few years. Depending on their circumstances, small businesses may also qualify for lower rates or exemptions.
It’s important to note that corporations must file accurate and timely corporate tax returns with HM Revenue & Customs (HMRC) each year, providing details of their financial performance over a given period.
How do I reduce corporation tax?
Reducing corporation tax is a priority for many businesses in the UK. Fortunately, there are several ways to do so without breaking any laws or regulations.
Firstly, one way to reduce your corporation’s tax bill is by investing in research and development (R&D). The government offers generous R&D tax relief schemes that can offset your corporation’s tax liability by up to 230%.
Another option is to claim capital allowances on equipment purchases. Capital allowances are a form of tax relief on tangible assets like machinery and cars. They allow you to deduct the asset’s cost from your profits before calculating your corporation’s tax liability.
You could also consider salary sacrifice arrangements with employees. This involves giving up part of their gross pay in return for non-cash benefits such as childcare vouchers or cycle-to-work schemes. In doing so, you could save on employer national insurance contributions, lowering your overall costs.
How much corporation tax do you pay?
A company’s corporation tax depends on its profits for the accounting period. In the UK, corporation tax is currently set at 19% of taxable profits. This percentage has remained unchanged since April 2017.
To calculate how much corporation tax your company owes, you must first determine your taxable profit by subtracting any allowable expenses and deductions from your total income. Once you have calculated this figure, multiply it by the current rate of 19%.
It’s important to note that small businesses may be eligible for certain allowances or exemptions that can reduce their overall tax liability. For example, if your company’s annual profits are less than £300,000, you may be able to pay a lower corporation tax rate through the Small Profits Rate.
If your business operates in multiple countries or generates income from overseas sources, it’s also important to consider how international taxation rules may impact your overall liability. Seeking professional advice from an experienced accountant or tax advisor can help you pay the correct corporate taxes while minimising unnecessary costs.
Who is responsible for paying corporate taxes?
When paying corporate taxes, the responsibility falls on the business entity itself. In simple terms, if you own or operate a limited company in the UK that generates profit, you are legally required to pay corporation tax.
Whether your organisation is big or small, trading for years or just starting, the obligation to file and pay corporation tax lies with you as a business owner.
It’s important to note that corporations must register their taxable profits within 12 months after their annual accounting period ends. Companies House will typically send confirmation of this registration and deadlines for filing returns and making payments.
As an entrepreneur, staying up-to-date on changes and updates in corporate taxation laws can be challenging, but it’s crucial. If you are uncertain about how much your company needs to pay in taxes each year or how often these payments should be made, consider consulting an experienced accountant who can guide you through calculating and paying corporation tax accurately and efficiently.
What are the due dates for corporate taxes in the UK?
The due date for corporation tax payment depends on factors such as the size of your company and its accounting period. For most companies, the deadline is usually nine months after the end of their accounting period. However, large companies with profits over £1.5 million or more will have quarterly installment payments throughout their financial year.
Keeping track of these dates is crucial because if you miss them, you may face penalties and interest charges from HM Revenue & Customs (HMRC). Late filing penalties start at £100 for each overdue return, while late payment fees increase up to 10% per year based on how much corporation tax is outstanding.
To avoid any issues with deadlines and potential charges by HMRC, ensure you have accurate records of your company’s finances and seek professional advice if necessary. Staying organised and informed about important dates related to corporate taxes in the UK can help ensure smooth operations for your business all year.
The corporation tax in the UK: how to make payment?
Making payments for corporation tax in the UK is a straightforward process. Fortunately, there are several ways to pay your corporation’s taxes. Firstly, you can make payments through bank transfer or online banking using HMRC’s bank account details.
Secondly, you can use debit or credit cards to make payments instantly on HMRC’s website. Thirdly, setting up a direct debit facility with HMRC will automatically collect your due amount from your nominated bank account on the due date.
Once payment has been made via any of the abovementioned methods, you should receive an electronic acknowledgment receipt confirming the transaction was completed successfully as evidence of payment made towards reducing corporate tax liabilities.
What will be the late penalty for corporation tax?
If you fail to pay your corporation tax bill by the deadline, HM Revenue and Customs (HMRC) can charge you a late payment penalty. The amount of the liability depends on how much you owe and how long the payment has been overdue.
The first thing that will happen if you miss your due date is that HMRC will issue a reminder notice. If you still don’t pay after this reminder, they may impose penalties ranging from 1% to 15% of the outstanding tax balance.
For instance, if your payment is delayed by under six months, you’ll be charged an initial penalty of 1% of the unpaid amount plus interest. This increases to 2% for payments delayed beyond six months and for additional charges over time.
Therefore, it’s crucial not to disregard any reminders or deadlines, as failure to make timely payments could result in severe financial consequences, including surcharges and legal action against your business.
Always ensure that all taxes are paid promptly. If there are challenges with making payments before scheduled dates arrive, seek professional assistance from accounting experts like Star Sterling Outsource, which specialises in corporation tax in the UK.
Conclusion
Reducing Corporation Tax can be a complex process that requires careful planning and expert advice. However, with the right strategies, minimising your corporate tax liabilities and improving your bottom line is possible.
Ultimately, by taking proactive steps to reduce your corporation’s tax burden, you can free up more resources for investment in growth and expansion. So don’t hesitate to take action today and explore ways to optimise your company’s financial performance!
