When you set up and run a limited company using our online bookkeeping service, it’s important to understand how Corporation Tax works. Corporation Tax is a type of business tax based on the profits your company makes; so you must ensure you set aside enough of your company’s income to pay the tax by or before the deadline. Late or inaccurate payment could mean you face fines and penalties from HMRC.
Your dedicated accountant will work with you to review your online book-keeping records and prepare your records for HMRC so that everything runs smoothly. We will contact you in the last trading quarter of your financial year to discuss the issue and to begin helping you to prepare. Nearer the time, we will liaise more closely to prepare your final year-end accounts and submit the relevant documentation to HMRC and Companies House. The main thing you need to concern yourself with is keeping track of your anticipated tax bill – which is easy through our online accountancy system – and setting aside the money so that it’s available when it needs to be paid!
How much is Corporation Tax and how is it calculated?
Currently, Corporation Tax is 19% (Tax Year 2019/20) and this is applied to your limited company’s profits which are calculated after salaries and other expenses have been deducted. You will legitimately reduce your corporation tax bill if you claim every allowable expense you are entitled to. Don’t forget to include your salary, mileage, premises rent and equipment. 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.
If your company makes a loss, this can be rolled forward and offset against profits in future accounting periods. Your dedicated accountant will be able to review your finances and advise you throughout the process
For more details about the current UK dividend tax rates, read our ‘2019/20 Dividend tax rates and thresholds guide‘.
Be aware of your Corporation Tax deadline
The end of each 12-month accounting period is known as your ‘year-end’. You must calculate the Corporation Tax due at your year-end and pay it to HMRC within nine months and one day of your year-end date.
For example, let’s say you set up and started trading from your limited company on 1st May 2019. Your year-end will be 30th April 2020 and your deadline for submitting your Corporation Tax will be nine months and one day later, 1st February 2021
Of course, you don’t have to wait until the deadline to pay your Corporation Tax, you can pay it as soon as you’ve submitted your information to HMRC. If you do this, HMRC will pay you interest at 0.5% 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 this interest payment, it may not be appropriate for you to do so as it may lead to cash flow issues. Again, check with your dedicated accountant first.
You will legitimately reduce your corporation tax bill if you claim every allowable expense you are entitled to. Don’t forget to include your salary, mileage, premises rent and equipment.
Setting aside money for Corporation Tax
It’s 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). Don’t worry, our online portal will help you calculate how much tax you should set aside to ensure you are not short each year. Alternatively, if you need more help, you can always speak with your dedicated accountant as well.
If your company makes a loss, this can be rolled forward and offset against profits in future accounting periods.
How Corporation Tax is paid
We will work alongside you to prepare your year-end accounts correctly. We will submit an online form called a CT600 to HMRC on your behalf and let you know when that’s happened. The form is 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’ll receive confirmation of the amount of tax to pay and the details from this will be needed when you make payment to HMRC, which you can do online. Again, your accountant will be by your side to guide you every step of the way.
Penalties for late payment
HMRC can impose fines if you don’t file your Company Tax Return by the deadline.
Time after deadline
Up to 1 month
1 to 3 months
3 to 6 months
More than 6 months
Penalty
£150
£375
£750
£1,500
You’ll automatically receive a penalty notice if your accounts are filed after the deadline.
The penalty is doubled if your accounts are late 2 years in a row
If you do this, HMRC will pay you interest at 0.5% 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 this interest payment, it may not be appropriate for you to do so as it may lead to cash flow issues.
If you have any questions about any aspect of Corporation Tax, it’s best to speak to one of our small business accountants. Our online book-keeping team supports thousands of contractors and small businesses, providing straight-forward advice and support.
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