Updated 03 December 2020
3min read
Corporation tax is the main tax that a limited company must pay. Corporation tax must be paid both on the company’s profits and on any gains from selling assets (e.g. land, property or shares) that have increased in value.
Sole traders and partnerships don’t pay corporation tax, but instead pay income tax (on business profits) and capital gains tax (on any gain from the sale of assets).
You are responsible for ensuring that you pay the right amount of tax, so you must keep accurate company accounts and file a Company Tax Return by your deadline.
Your company will pay corporation tax at 19 per cent on its profits – that is, the money it makes in that accounting period, minus any overheads and expenses. The rate of corporation tax may change from time to time (it used to be higher) so you must ensure that you pay the correct rate that applies for your accounting period. You can check the dates of your accounting period on your financial statements, or on the government's website.
You’ll need to register for corporation tax when you set up as a limited company (within three months of starting to trade). Note that ‘trading’ may be any business activity from buying stock to placing an advert – it doesn’t have to involve making money. Therefore you should register for corporation tax as early as possible to avoid facing a penalty.
You can lower your corporation tax bill in a number of ways, such as by claiming allowable expenses. There are also various corporation tax reliefs available that can lower your final bill, if you qualify for them.
As with personal income tax for sole traders, there are certain allowable business expenses for a company that can reduce its corporation tax bill. Any cost that the company incurs solely for the purposes of running the business should be deducted from the company’s profits before tax. A long lists of expenses qualify, the main ones being:
This is just a partial list. Expenses must be ‘wholly and exclusively’ for business reasons, without any personal use.
The company can’t claim for equipment and plant that you buy and keep for the business, as these are known as capital assets. However, you may be able to claim capital allowances on these.
Your company may also qualify for certain corporation tax reliefs. Reliefs may be available on:
Find out more about making your business tax-efficient.
If your taxable profits are £1.5m or less, you must pay your corporation tax within nine months and one day of the end of your accounting period. If your taxable profits are more than this, you will pay in instalments. See the HMRC website for more information on this.
It’s important to note that the deadline for paying corporation tax comes before the deadline for filing your company tax return (which is 12 months after the end of your accounting period). You will therefore need to prepare your company tax return well in advance of the deadline, so that you know how much corporation tax to pay.
HMRC accepts a number of payment methods for corporation tax. Some take longer than others, so make sure you allow enough time if the deadline is near.
Payment |
Time needed |
---|---|
Online / telephone banking |
One/two working days |
CHAPS |
|
Bacs |
Three working days |
Direct debit |
|
Online (debit card only) |
|
Bank or building society |
|
New direct debit |
Five working days |
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