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About Corporation Tax

If you are a limited company, you have to pay Corporation Tax on your taxable profits.

Corporation Tax is also applicable to:

  • Most unincorporated associations, such as clubs and co-operatives
  • Foreign companies that have a UK branch or office

It is a requirement for your company to keep records for Corporation Tax.

What Profits Do You Have To Pay Corporation Tax On?

Profits that are taxable include the money that your company makes on things such as:

  • Doing business (sometimes referred to as “trading profits”)
  • Any investments
  • Selling assets for more than they cost (also called “chargeable gains”)

If you have a company that is based in the UK, it will pay Corporation Tax on all of its profits from the UK and abroad.

If your company is not UK based but has an office or branch here, then you only have to pay Corporation Tax on profits gained from activities in the UK.

How Do You Get Set Up For Corporation Tax?

If you are starting a limited company, you must set up for Corporation Tax.

If you are planning to start up an unincorporated association, you should write to HM revenue and Customer (also known as the HMRC) to ask to be set up for Corporation Tax. HMRC will than send you a form that you need to complete and return.

[box]Remember, you have to set yourself up for Corporation Tax within 3 months of your company’s accounting period starting. There is a chance you will be penalised if you don’t.[/box]

How Do You Pay And Report Corporation Tax?

You will not receive a bill for Corporation Tax, it is your responsibility to work out how much your company owes. You have to report Corporation Tax after you have paid for it, by filing a Company Tax Return.

Unincorporated associations and foreign companies are required to follow the same steps as limited UK companies:

  1. Find out and check the deadlines for paying and filing your Company Tax Return- these vary depending on your company’s financial year
  2. Then you will need to work out the taxable profits for your company by preparing your annual accounts- the majority of small companies and associations can use the HMRC’s accounts template that can be found online
  3. After that, you should check Corporation Tax rates and reliefs- this involves taking the total reliefs you can claim away from taxable profits and then multiplying this result by your rate to work out how much Corporation Tax you will have to pay
  4. Pay your Corporation Tax
  5. Report how much Corporation Tax you have paid by filing your Company Tax Return

If you have difficulty completing this or have questions about Corporation Tax, you should ring their helpline and someone will be able to help you.

What Do I Do If I Have No Corporation Tax To Pay?

If you find that no payment is due, you should tell the HMRC this. You are still required to do this by the deadline for paying and you wills till have to file your Company Tax Return.

What Do I Do If My Business Is Dormant?

If your company or association is no longer active, you may not have to pay Corporation Tax or file your Company Tax Returns. Sometimes, your business may be classed as “dormant” or “non-trading”.

The HMRC may come to the decision that your company or association is dormant if:

  • It is not doing business or receiving an income
  • It is an unincorporated association that owes less than £100 in Corporation Tax
  • It is a flat management company this can be qualified as dormant

Please note that there are further additional requirements for dormant unincorporated associations.

You will get a letter from the HMRC to tell you if you don’t have to pay any Corporation Tax or file your Company Tax Returns.

If the HMRC tells your to file a company Tax Return by letter, you must still do so.

It is also advised that you check if your company is considered to be dormant for Companies House annual accounts.

What Should I Do If My Dormant Business Becomes Active Again?

If you find your dormant business becomes active again, you have to inform the HMRC that your company has become active again. You will then get a letter from HMRC to tell you if you must pay Corporation Tax and file your Company Tax Returns.

What If My Dormant Unincorporated Association Becomes Active Again?

If you find yourself in this situation, you should write to your Corporation Tax office to tell them your association has become active again. Check any recent tax forms or letters from the HMRC for the correct tax office address or ring the Corporation Tax Helpline.

You are also required to include your latest annual accounts for your association. If your association hasn’t prepared annual accounts, you will need to include its latest annual statement of income and expenditure as well as its rules or constitution.

You will theng t a letter from the HMRC to tell you if your association must pay Corporation Tax and file Company Tax Returns or not.