Companies resident in the UK are subject to corporation tax on their worldwide profits, whether that be trading profits or non trading profits such as investment income. Company taxation is an increasingly complex area and there are a myriad of tax saving opportunities and likewise traps that can influence how much tax is paid on a company’s profits. Corporation tax is also payable by other bodies such as unincorporated associations, clubs and trade bodies.
Unlike individuals and partnerships who pay tax based on a tax year, entities subject to corporation tax pay tax based upon an accounting period. Other than occasional exceptions, these are twelve month periods for which the company has prepared its accounts. Crucially, the tax payable is not necessarily based upon the net profit as shown in the company accounts, instead it is based upon taxable profits which can often be considerably different due to various tax regulations that may disallow income or expenses from the tax calculation.
Corporation Tax Rates and bands are as follows –
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Corporation tax is payable in a different manner dependent upon whether or not you are classed as a small and medium sized company (SME) or a large company.
Corporation Tax is payable nine months and one day after the end of the accounting period.
Large companies are different in that they are required to pay their corporation tax in instalments rather than pay it in one lump sum. The instalments and balancing payment are due as follows:-
Instalments towards your corporation tax liability are payable on the 14th day of the seventh, tenth, thirteenth and sixteenth month after the commencement of a twelve month accounting period. This means that, for a company with an accounting year ending 31 December 2017, instalments will be payable:
The balance of corporation tax payable for a particular accounting period will be due nine months and one day after the end of the accounting period. Using an accounting period of 31 December 2017 this would mean that the balance of corporation tax payable for that period would be payable by 1 October 2018.
Not all companies make a profit, particularly in the early years of trading. This can be for a variety of reasons and doesn’t necessarily mean that you are doing anything wrong, some businesses take time and effort to build and grow or you may be developing a revolutionary new product that takes time and investment to research and develop.
Where your accounts show an accounting loss, assuming that there remains a loss after any tax adjustments then the losses arising can be used in a number of ways. This article is too short to go into to necessary detail but essentially trading losses can be:
When advising our clients, we take care to review how any losses can be put to best use as every company is different.
This topic deserves an article all of its own for a number of reasons. They key thing to remember when trading via a limited company, regardless of size, is that the company is a legal entity in its own right. The value contained within that company whether that represents cash in the bank, assets or something else is the property of the company in the first instance. Removing value from the company as part of your remuneration package needs to be carefully planned to ensure that you are not paying more tax than you need to. However you extract an income from the company it needs to be carefully considered and documented to ensure that you are fully compliant with all appropriate regulations and reporting obligations.
We hope that you have found this guide useful. If you would like some further advice or assistance please contact us.