Corporation tax

If you trade as a limited company, you’ll want to ensure that paying corporation tax is as painless as possible — both in terms of paperwork and the total corporation tax payable.

UK corporation tax rates are relatively low (from 20 per cent in 2012-13) — significantly lower than the higher rates of personal income tax. From April 2012, the main rate of corporation tax will fall to 24 per cent and cut again to 22 per cent by 2014. This can provide beneficial tax planning opportunities.

While we’ve included HMRC’s official guides, companies generally find that using an accountant is the best way to ensure they meet their corporation tax obligations and make the right financial choices. Your accountant can also tell you how to take advantages of any way to reduce the total corporation tax (and other taxes) you pay.

UK corporation tax basics

Corporation tax is charged on taxable profits. This includes trading profits and most investment profits. It also includes any capital gains (where you have sold an asset for more than you paid), usually referred to as chargeable gains.

Corporation tax is generally charged on your taxable profits for a 12-month accounting period that matches your company financial year. There can be exceptions, for example, when you start a new company or change your financial year-end.

UK corporation tax rules set out exactly which reliefs and capital allowances can be set against business income in calculating your taxable profits. Most legitimate business expenses can be.

Corporation tax rates (UK)

Your corporation tax liability is calculated by multiplying taxable profits by the corporation tax rate.

Corporation tax rates in the UK can change from one financial year to the next. If your accounting period falls into two financial years with different corporation tax rates, the different rates will be charged on each part of your profits.

The corporation tax rates that UK companies pay also depend on their total profits. The lower “small profits rate” is paid on profits up to £300,000, while the main corporation tax rate is charged if your profits are more than £1.5m. The small profits rate stays at 20 per cent through 2012-13. There is a system of marginal relief for profits between these two limits.

Corporation tax records, returns and payments

Keeping accurate corporation tax records of your income and expenses is essential — and a legal requirement.

You must pay your corporation tax within nine months of the end of your accounting period, or in instalments if your profits exceed £1.5m. You must also file your corporation tax return within 12 months. You are responsible for calculating the corporation tax due and making sure that you submit the return online in accordance with HM Revenue & Customs requirements.

Popular content on corporation tax

• HMRC Marginal Small Companies' Relief Toolkit
• HMRC Directors' loan accounts toolkit
• HMRC Capital allowances toolkit

Find more articles, videos and tools on corporation tax in the Resources box on the right.