Corporation Tax 101
If you’ve started your own limited company or are thinking about forming one, you’ll need to budget for your taxes. Welcome to the world of corporation tax!
We know what you’re thinking: “Taxes? Straight over my head.” But it’s well worth learning about the ins and outs of corporation tax for your business. Think of it as a secret weapon for maximising profits and making your company shine.
We’ve got the low down on what corporation tax is, who pays it and the do’s and don’ts so you can avoid any costly mistakes.
Let’s take a look.
What is corporation tax?
If you run a limited company and make a profit, then you’ll be subject to corporation tax. Only your profits are taxed, which is worked out after all expenses and reliefs have been applied. Each company is responsible for reporting its taxable profit to HMRC.
The current corporation tax rate is 19% for all businesses, but this changes in April 2023 and gets a bit more complicated.
From then, companies earning under £50,000 in profit will stay at 19%. After that it increases gradually, with profits taxed at a tapered rate. Any business making over £250,000 profit will be hit with the full 25% rate.
Worried about how the changes might affect your biz? Get in touch with us if you want some expert guidance.
Who pays corporation tax?
Any limited company in the UK needs to pay corporation tax. It can also apply to trade associations, cooperative societies and member clubs.
Sole traders will instead pay income tax and any capital gains taxes that are applicable (like selling a property related to their business).
Corporation tax do’s and dont’s
Here are some quick tips on best practices for reporting and paying corporation tax. Buckle up!
Do: register and file
HMRC will need a company tax return from your business each year. If your limited company is new, tell HMRC about the formation within three months so they’ve got you on the books.
Don’t: miss the deadline
Corporation tax is due nine months and a day (hello, weird tax system) after your company’s financial year ends. HMRC has to get the payment by the deadline. Thankfully, there are many ways to pay corporation tax quickly and easily.
Do: get your tax return in early
You might need to pay your corporation tax bill before you’ve submitted your return, but you need the return finished to tell you how much tax you owe. It’s a real chicken-and-egg situation, so getting your company tax return sorted early avoids a lot of headaches.
Don’t: get a penalty
If you miss the deadline to report to HRMC or pay your tax, you may get late fees that escalate quickly. Be sure to keep up with your deadlines, or let an accountant handle them!
Final thoughts
We hope this quick primer gives you the basics of corporation tax for your business. The more you know about corporation tax, the better equipped you'll be to make the best decisions for your company.
Want a helping hand with your company finances? BXD Accounting is on hand to help - book a free consultation today.