Limited companies need to pay corporation tax on their profits. If your company is based in the UK, your profits will be liable for corporation tax regardless of where in the world they came from.
Like income tax, the rate you pay for corporation tax depends on the amount you earn. However, there are key differences and separate rules. For example, where corporation tax is concerned, the tax year runs from 1st April to 31st March (as opposed to 6th April to 5th April for individuals).
### Accounting periods
Your company pays tax on its profits during each corporation tax accounting period. This is usually 12 months long and matches your company’s financial year, which starts and ends according to the dates covered by your company’s annual report and financial accounts that you file to Companies House.
And although, like income tax, self assessment applies to corporation tax, the deadline to pay the tax comes before the deadline to file your company tax return: you have to pay the tax by nine months and a day after the end of your company’s corporation tax accounting period, and you need to file the return by 12 months after the period.
So if your company’s corporation tax accounting period runs from 1st April to 31st March, along with its financial year, you would have to pay the applicable corporation tax by 1st January and file your company tax return by the following 31st March.
In some cases, a corporation tax accounting period can be shorter than 12 months. If your company accounts cover less than a year then the accounting period will usually end on the date the accounts have been made up to – in which case you’ll file one company tax return covering that period.
However, a corporation tax accounting period cannot be longer than 12 months. If your company accounts cover a period over a year and the firm has been active throughout, you’ll have to file two company tax returns for two corporation tax accounting periods, even if you only need to file one set of accounts with Companies House.
### Corporation tax rates
There are two corporation tax rates: the “small profits” rate (the lower rate), and the “full” or “main” rate. There is also a sliding scale between the two rates known as “marginal relief”. So if your profits fall between certain limits, you pay the main rate but it gets reduced by marginal relief.
If your annual profits fall within £300,000, you’ll pay the small rate, charged at 20%. For profits of £1.5 million or more, you’ll be charged the main rate of 21%. If your profits fall between £300,000 and £1.5 million, you’ll pay the main rate but with marginal relief – the amount of which will depend on the exact amount of profit. However, from 1st April 2015, the small profits rate will be unified with the main rate, so there will be one corporation tax rate of 20%.
You need to file your corporation tax return online. You also need to pay any tax due electronically – you can do this via Bank Giro, at the Post Office, by CHAPS, online via a debit or credit card with BillPay, or – HMRC’s recommended method – by Direct Debit.
For more information, visit the HMRC website: http://www.hmrc.gov.uk/CT