Corporation tax

Corporation tax is paid by limited companies on their profits. It is also paid by:

  • members’ clubs, societies and associations
  • trade associations
  • housing associations
  • groups of individuals carrying on a business but not as a partnership, e.g. co-operatives, even if they are not limited companies.

Corporation tax is paid (2008-2009 rates) at the small companies’ rate of 21% for profits of up to £300,000 and a main rate of 28% for profits of over £1.5 million.

Companies making profits between £300,001 and £1.5 million receive marginal rate relief, which eases the transition between the lower and higher rates.

If your company is liable to pay corporation tax, you must:

  • Tell HM Revenue & Customs (HMRC) that your company exists and that it is liable for tax.
  • File a self-assessment tax return for your company, on which you calculate your own corporation tax liability and pay it without prior assessment by HMRC.
  • Keep records of all company expenditure and income in order to work out your tax liability accurately.

How to pay: Corporation tax is normally due by nine months and one day after the end of your company’s accounting period. So if your company tax return covers an accounting period 1 January 2008 to 31 December 2008, Corporation Tax must be paid no later than 1 October 2009.

If you don’t let HMRC know that you are liable for corporation tax, file your company tax return incorrectly, or pay your corporation tax late, you may incur a financial penalty. If you don’t pay your corporation tax on time, HMRC will charge interest from the day it is due until you pay it.

Seeking professional advice is a wise step to ensuring that your financial affairs are as tax-efficient as possible.

HMRC recommends that corporation tax payments are made electronically, for example by direct debit, Bank Giro or via the Post Office.

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