Guide To Corporation Tax For Small Businesses

14th October 2021

If you’re the owner of a business or limited company, then your yearly profits will be affected by corporation tax. 

Failing to register for corporation tax or giving incorrect information to HMRC can be detrimental to your business and result in hefty fines, which is why it’s so important that you understand the ins and outs of corporation tax. 

Lucky for you, we’ve made a nifty guide to corporation tax for small businesses - so read on to learn all about corporation tax, who has to pay it, as well as how you can register and complete a corporation tax return.

What Is Corporation Tax?

Tax is a compulsory charge that the majority of us have to pay, and corporation tax is not much different. However, instead of being taxed on our income, corporation tax focuses on profits made by a business or company. 

Corporation tax is based on the annual profits that a business generates. Although all profits made are taxable, your small business may be able to claim a deduction for certain expenses to lower the overall figure. 

This type of tax applies to any investments made, trading products (any earnings made through the business), as well as selling assets such as property, land, machinery, or shares. 

Corporation tax is essential for any business - no matter how big or small, it’s essential that it is paid - especially if you have an upcoming VAT inspection.

Who Has To Pay Corporation Tax?

All limited companies in the UK are required to pay corporation tax. It doesn’t matter how much or how little the company makes, as the tax is charged as a percentage of the company’s annual profits. 

However, if your business operates as a sole trader or partnership, then you won’t pay the tax as corporation tax. You’ll be classed as self-employed and will still pay tax on your profits, but through the self-assessment taxation system instead. 

Even if your business is not incorporated, you may still have to pay tax. You have to pay corporation tax if you’re a:

  • Trade association 
  • Housing association
  • Members club (e.g societies or associations) 
  • Group of cooperatives or simply a group carrying on a business without a partnership title

How Do I Register For Corporation Tax?

If you’ve never registered for corporation tax before, then you’ll be glad to know it’s a quick and easy process. 

The important thing is that you do it as soon as possible - if you’re a company director, it’s your duty to complete the tax return within three months of commencing trade. 

Simply fill the tax return in, file it, and pay the bill. The majority of businesses will hire an accountant to complete the task on your behalf to ensure that everything is filled in correctly and no mistakes are made. 

To register for corporation tax, simply visit the gov.uk website and access the HMRC section. 

You’ll need to provide them with the name of your company and the registration number. You’ll also be required to let them know the date your business began - this would be the start date of your company’s accounting period. 

They’ll also need to know the type of business you are, the main business address, and the names and home addresses of all directors of the business.

How Do I Complete A Corporation Tax Return?

Every year that your business is active, you’ll need to complete a CT600 tax return each year. To avoid penalties, you should file your tax return within 12 months after the accounting period. 

You’ll need to provide HMRC with details of your business, including the name and address of your business, as well as tax calculations, products, and allowances. 

Many small businesses will have an accountant complete tax returns as the process can be pretty complicated - and accountants know what allowances small businesses can claim to legally lower the tax amount payable. 

Once you’ve provided HMRC with all the required information, you’ll find out exactly how much corporation tax you owe. 

Even if you’re not earning a profit, or you’re losing money, you will still need to complete a tax return and answer all questions correctly. 

If your profits exceed £1.5 million, then you will need to pay your bill in instalments - the dates of which will depend on the size of your company.

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