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.
For more information, visit www.hmrc.gov.uk/ct.
For Independent Financial Advice, please visit www.inspirewealth.co.uk.