Corporation tax is paid to the government by limited companies in the UK. If you are a business owner and it’s getting closer to your tax deadline, it’s important to understand who pays corporation tax and what taxes you have to pay.
Many small business owners pay corporation tax, as do organisations and societies but sole traders and business partnerships do not pay corporation tax.
If a company operates in multiple countries, it will usually be taxed on the profits which have been raised from UK-based assets for its corporation taxes.
What is corporation tax?
Corporation tax is a tax paid by limited companies and it is calculated on the company’s annual profits. It is the fourth biggest source of revenue for the UK treasury and is predicted to raise around £40 billion in 2021-22.
Corporation tax is calculated based on the income a company makes from trading and investments. If your company sells an asset for more than it costs, that is also taxable income.
Limited companies do not have to pay income tax or national insurance, they pay corporation tax on business profits instead.
The rate of corporation tax in the UK
In the UK, the rate of corporation tax is currently 19% for limited companies and hasn’t been changed since April 2016.
There are certain industries that have different corporation tax rates, such as banks and oil and gas productions as well as a reduced corporation tax rate of 10% which applies to profits relating to patented technology.
In the new UK treasury budget which takes effect on 1st April 2023, the headline rate of corporation tax will increase for companies with profits over £250,000. They will have to pay corporation tax at a rate of 25% and businesses that make less than £50,0000 in profit will have to pay 19% corporate tax, which will be called the small profits rate.
What are corporation tax accountants?
If your business is growing or you need some extra help with your corporate taxes this year, it is important to speak to an expert accountant before completing your corporate tax return.
There are several ways you can reduce the amount of corporation tax your business pays. An experienced corporate tax accountant can help with annual accounting, corporation tax and deductions. If you have failed to submit your corporate tax return or missed paying by the deadline you may be fined until the tax bill has been paid in full.
Our experienced corporation tax accountants can help with annual accounting, corporation tax and deductions. If you have failed to submit your corporate tax return or missed paying by the deadline you may be fined until the tax bill has been paid in full.
Reducing corporation tax
Corporation tax can be a big outgoing expense for businesses, however, there are a number of deductions that can be used to reduce the bill. It’s essential that businesses claim their allowable expenses by deducting the cost of these expenses from the business profit.
Staff salaries, office equipment and industry-specific machinery can all be classed as business expenses. It is also important to consider whether you should pay yourself a salary or divided for tax purposes. You may also be able to claim research and development tax relief from HMRC and claim capital allowances.
Is who pays corporation tax responsible for corporation tax returns?
Corporation tax must be made by all limited companies in the UK. It also has to be paid by housing associations, trade associations, members clubs, societies, associations and co-operatives.
The director of the company is responsible for the completion and submission of a corporate tax return but they can get help from an accountancy firm.
Your business may also be chosen for an HMRC inquiry or compliance check where the tax return will be analysed in detail. This means it is more important than ever that your tax returns are correct and complete. On some occasions, you may not have to pay corporation tax but you will still need to fill out a company tax return.
How is corporation tax paid?
There are several different ways a company director can pay their corporation tax bill. If you are making the payment on the same or the next day you can use CHAPS, telephone banking or an online bank transfer.
You can also pay corporation tax via Bacs, direct debit or in person at your local bank branch.
It can take up to five days for a direct debit payment to go through if you haven’t previously used it so make sure to allow enough time before the payment deadline for it to clear. A company director who pays corporation tax must do it before the deadline runs out as they can be fined.
Contact WIS today
If you need help with corporation taxes, our experienced team at WIS Accounting are here to make the process simple and straightforward. Our friendly accountants in Essex have helped hundreds of businesses with their corporation tax returns and we also have a team of fintech accountants and crypto accountants.