What is UK Corporation Tax?

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Corporation tax is referred to as the equivalent of income tax for your company. Employees normally pay income tax on their earnings whereas a company owner pays corporation tax instead.

The rate of corporation tax for your company is dependent upon how much profit the business has made in a financial year. However, the corporation tax rate is much more favourable than income tax rates.

Is it required for a business to register for Corporation Tax?

If you set up a business without registering it as a limited company with Companies House, then you do not need to register it for corporation tax, as this type of tax is only applicable for registered companies. However, if you are operating a profitable business, there are specific benefits in going through the company formation procedure to build your business into a limited company. The company formation process will help you to protect your assets.

Registering for Corporation Tax:

After forming a limited company one needs to register for corporation tax. You must register your limited company for corporation tax within three months of when you begin trading. If you fail to register on time, then you can face a severe financial penalty. Therefore, delaying the corporate tax registration is of no benefit.

For registering your company for corporation tax, at first you will need to have your company's 10 digit Unique Taxpayer Reference (UTR) handy. You need to keep this number during the corporate tax registration process online.

The HMRC will send you your UTR number within a few working days after you have completed your company registration with Companies House. If you are unable to find your UTR then you can contact HMRC directly and ask them for the UTR number.

When contacting HMRC for registering for the corporation tax you are required to provide the information given below:

  • Your company registration number
  • The starting date of your business
  • The last date of your annual account

When should a company pay corporation tax?

The majority of the company owners find it difficult to understand the corporation tax rules, especially their payment deadlines. You must pay corporation tax before filing your company tax returns.

The rules for paying corporation tax are given below:

  • The tax amount must be paid within nine months
  • The company accounting period will end on 31st March. This implies that you need to pay your corporation tax by 1st January in the following year.
  • If your business profit has exceeded £1.5 million, then it is necessary for you to pay your corporation tax instalments.
  • If your company is making a loss, then you will not be required to pay any corporation tax, as this tax is based on profit. But you need to declare to HMRC that you have nothing to pay so that they stay updated about it.
  • Ensure to keep your accounts up to date and pay your corporation tax on time to avoid penalties.

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