On an annual basis, companies have to pay Corporation Tax to HMRC on the profits they make from trading (doing business), investments, and ‘changeable gains’ from the sale of any company assets (e.g., shares, land, property, machinery, equipment) for more than they cost.
Companies based in the UK will pay Corporation Tax on all profits from the UK and abroad. However, if your company is not based in the UK but has a branch or office here, you will only pay Corporation Tax on the profits from UK activities.
You will need to register your company for Corporation Tax with HMRC no later than 3 months after the date you start to do business. You can do this online. If you’re not planning to trade for some time, or at all, you need to tell HMRC that your company is dormant. This means that you will not have to register for tax at this point.
Please note: Companies House automatically informs HMRC when your company is incorporated. HMRC will then send you a letter with your company’s UTR (unique taxpayer reference) and important information about how and when to register for Corporation Tax, file tax returns, and pay your tax bill.
When you register for Corporation Tax, you will need to provide HMRC with the following company information:
These details will be used to determine your company’s deadlines for filing a Company Tax Return and paying Corporation Tax.
Since 1 April 2015, the main rate of Corporation Tax has been set at 19%. This rate applies to all taxable profits apart from ring fence profits (i.e., profits from oil extraction or oil rights within the UK or the UK continental shelf).
Corporation Tax is paid to HMRC electronically on an annual basis, after the end of a company’s financial year. The deadline for paying your Corporation Tax will be nine months and one day after your company’s ‘accounting period’ ends. HMRC will let you know exactly when and how to pay it.
The ‘accounting period’ for Corporation Tax is the period of time covered by a Company Tax Return. It cannot be longer than 12 months, but it can be shorter. Typically, the accounting period is the same as the financial year covered in the annual accounts, but it may be different in the first year after company formation. For example, if company accounts cover more or less than a 12-month period of time.
If your company is ‘active’ for Corporation Tax, you will be required to file a Company Tax Return (including annual accounts) to HMRC no later than 12 months after the end of the accounting period that it covers. Note that the tax return deadline falls after your Corporation Tax payment deadline.
HMRC will confirm the exact date by which you must file your tax return and accounts, in addition to sending you a reminder.
There are separate deadlines for filing accounts at Companies House and HMRC. The first accounts for Companies House are due 21 months after the date of company formation, and subsequent accounts are due nine months after the end of each financial year. For HMRC, you must deliver accounts with each Company Tax Return 12 months after the end of each accounting period for Corporation Tax.
Legally, directors are ultimately responsible for ensuring that a company’s Corporation Tax bill is calculated accurately and paid on time. Working out Corporation Tax requires accurate bookkeeping and skills in accounting, so many companies hire business accountants to do this for them, along with preparing their tax returns.
Unless your company requires an audit, there is no legal requirement to use an accountant. However, it may be beneficial if you have no prior experience preparing accounts and tax returns. Accountants can also offer expert advice on tax planning and tax-saving strategies.
If your company is dormant (not trading), you should not have to register for Corporation Tax, pay Corporation Tax, or file Company Tax Returns and accounts with HMRC. However, you must tell HMRC that the company is dormant for Corporation Tax, otherwise you may be required to file a tax return and accounts to show that the company was dormant during that period.
If your company becomes dormant after a period of being active, you will be liable to Corporation Tax on any income received during the accounting period in which the company was active, and you will also have to file a Company Tax Return and accounts for that period.
If and when your dormant company starts doing business or receiving any kind of income, you must tell HMRC within three months that the company is active for Corporation Tax.
Please note: whether your company is active or dormant, you must still file annual accounts with Companies House.