Our introductory guide to Corporation Tax

Its very useful for business directors to understand what this tax is, what it covers, when you have to pay it and how it is made up. UK businesses overpaid at least £9.1bn in corporation tax in 2020, up 12.4% from £8.1bn the previous year. At Kaizen we can help make certain you don’t overpay Corporation Tax and maximise the deductions you can make, often saving you thousands of pounds, money that can be reinvested in the business or redistributed in areas such as profit sharing.
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Corporation tax - a definition

Corporation tax is paid by UK limited companies and some other organisations. It is based on the annual profits that a company makes. All profits are taxable but certain specific expenses can be deducted from this profit. There are allowances you can make use of which help reduce this Corporation tax liability. Corporation tax specifically applies to the following in the case of a Limited Company:

• Trading profits - earnings generated from doing business with others
• Investment income, money made on any investments the Limited Company has
• The sale of any company owned assets such as land, property, shares, and machinery.
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Who pays corporation tax?

Corporation tax has to be paid by all UK Limited Companies who maker profits in any one financial year. Sole traders and partnerships don't pay corporation tax, instead they have to fill out a tax return and pay income tax on their earnings.

There are other organisations that may need to pay corporation tax despite not being incorporated as limited companies. These include:

• Housing associations
• Membership organisations
• Clubs and societies
• Co-operatives
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How to register for Corporation tax

When starting up a limited company, you'll need to register for corporation tax. You can do this through HMRC on their website and you have to do this within 3 months of commencing trade. It's the duty of a company director to fill in the company tax return, file it, and then pay any Corporation Tax bill. You can get accountants like Kaizen to do this on your behalf however, responsibility from a legal perspective still rests with a director.  
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Filing a company tax return

You must complete a company tax return, CT600 every year. You also have to file your company accounts with HMRC and Companies House. Some of the items you'll need to include in the CT600 are your turnover and profit for the reporting period, your tax calculations, and the allowances and reliefs you've made use of. This will then inform you how much corporation tax you will owe. Remember, you must file your company tax return up to 12 months after the accounting period that it covers. If your business is loss making, you still need to file a CT600 to declare this is the case. If you make more than £1.5 million in profits then you'll have to pay your Corporation Tax bill in advance instalments. The instalments will be an estimate of the Corporation Tax liability due for that period with an adjustment required once the final liability has been calculated after the period end.
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When does Corporation Tax have to be paid?

The Corporation Tax filing deadline is different to other taxes. It should be paid before you file your company tax return. You need to settle your Corporation Tax bill nine months and one day after the end of your accounting period from the previous financial year. So for example if your accounting period ends on the 31 December then your bill will be due by 1 October the following year.
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Making your Corporation Tax payment

You need to settle your bill by the deadline date. Failure to do this will likely result in fines and penalties as HMRC are very tight on payment of this tax. Go to the HMRC website to find out about ways to pay.

Just from this brief overview you can see that whilst this is simply a tax on profits, it can be very complex in practise. For this reason we can advise you on what you should and shouldn’t be paying. What allowances you can claim and give you an accurate assessment of how much you should be paying, helping to ease your cashflow.

At Kaizen we have a lot of experience in helping clients with their statutory returns, please do not hesitate to call us on 01482 772261 or email us at info@kaizengroup.uk if you want to learn more about how we can help you prepare and submit your annual accounts and yearly Corporation Tax returns. We will be very happy to help you with any query you may have or assistance you need.