UK Corporation Tax guide

Clever Accounts

When you set up and run a limited company using our online bookkeeping service, it’s important to understand how Corporation Tax works. Your company’s Corporation Tax calculation is based on the annual profit it has generated, hence why it is advisable to set aside enough funds before your tax bill’s annual deadline date. Late or inaccurate payment could translate into fines and penalties from HMRC.

What are the Corporation Tax rates for 2022/23?

Per the October 2022 budget statement, the Government has reintroduced the new Corporation Tax rates for the 2022/23 financial year.  

  • The current Corporation Tax main rate will remain at 19% until 31st March 2023.
  • From 1st April 2023, the 19% main rate will increase to 25% for companies with annual profits of over £250,000.
  • Companies with profits of up to £50,000 will continue to be charged at 19%.
  • Lastly, a marginal increase in Corporation Tax of up to 26.5% will be applied to annual profits between £50,000 to £250,000.

How can business expenses reduce your tax liability?

You can reduce your corporation tax bill if you claim every allowable expense you are entitled to. Do not forget to include your salary, mileage, premises rent and equipment.  

It’s important to note that salaries can be included in the Corporation Tax calculation, but not dividend payments. These payments are made after Corporation Tax has been deducted and are subject to a separate Dividend Tax.

Tax liability when making a loss

If your company makes a loss, this can be rolled forward and offset against profits in future accounting periods. Your accountant will be able to review your finances and advise you about your current options.

Company Year-End and Corporation Tax deadline

The end of each 12-month accounting period is known as your company’s ‘year-end’. Your annual Corporation Tax calculation will apply to each year-end.  

Your Corporation Tax bill deadline is due to be paid within nine months and one day after your company’s year-end date.

For example, let’s say you set up and started trading from your limited company on 1st May 2022. Your year-end will be 30th April 2023 and your deadline for submitting your Corporation Tax will be nine months and one day later, 1st February 2024

Get refund for early payments

Of course, you do not have to wait until the deadline to pay your Corporation Tax, you can pay it as soon as you have submitted your information to HMRC. If you do this, HMRC will pay you interest at 2% from six months and 13 days after the start of your accounting period to the payment deadline. Whilst you may wish to take advantage of interest on an early payment, it is advisable to make sure this does not subsequently cause any cash flow issues.

Again, advise with your accountant first before making any final decisions.

Setting aside funds for your annual tax bill

It is important to prepare for your Corporation Tax bill by setting aside the money throughout the year. We would recommend that you set up a separate account for tax and other savings and move enough to cover your Corporation Tax bill from your company’s current account to the savings account at the end of each quarter (or when all payments are received from your clients).  

As mentioned earlier, if your company makes a loss, this can be rolled forward and offset against profits in future accounting periods.

How Corporation Tax is submitted

Corporation Tax is submitted via HMRC’s CT600 online form. The form will include a record of your company’s income plus any expenditure such as salaries, rental of premises and other running costs.  

Once the form has been submitted, you will receive confirmation of the amount of tax you need to pay to HMRC, which you can do online.  

Deadlines, penalties and interest rates

HMRC can impose fines and added interest rates if you do not file your Company Tax Return by the deadline.

Time after deadline and penalties

Time after deadline Penalty
1 day £100
3 months Another £100
6 months An estimated 10% penalty will be applied by HMRC to unpaid tax from your Corporation Tax bill
12 months Another 10% of any unpaid tax

If your tax return is late 3 times in a row, the £100 penalties are increased to £500.

Interest rate on late payments

The interest rate on late payments was recently set to 5.50% but could rise or fall as the the Bank of England updates its base rate.

Any further questions?

If you have any questions about your next tax bill, you are welcome to advise with one of our accountants. Our experienced accounting team helps thousands of UK businesses, providing straightforward advice and support.

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