Corporation Tax
UK companies pay tax on their profits, and this is called Corporation Tax (CT). It’s kind of like Income Tax but is for companies instead of individuals. However, the rules around calculating and paying this are quite different…
To start with the rates are different. For 2023/24 the main rate of CT is 25% and this applies for companies with profits above £250,000. There is a small profits rate of 19% for business with profits up to £50,000. Then there is then a horrible “marginal rate” of an effective 26.5% for companies with profits between £50,001 and £250,000, so it’s best to avoid that if possible! If your profits are likely to fall within this “marginal rate” then please get in touch and we’ll see what we can do to help.
Any tax owed is due to be paid to HMRC nine months and one day after the accounting period ends. So if your accounting period ends on 31 December, you will need to pay any tax due by the following 01 September. Strangely, your CT return to report this to HMRC is not due until 12 months after your year end, so the following 31 December in the above example. This means that you have to make the tax payment before you have to send the tax return – crazy isn’t it!
In practice, we tend to submit the return before 9 months after your year end, so that HMRC can easily match your tax payment to the correct accounting period. There are penalties for filing your tax return late, and you will also incur interest on any late payments of tax, so it’s best to avoid these by getting everything completed in a timely manner.
In the UK, we actually have a pretty good system for Corporation Tax. Even though rates have risen in recent years, we still pay less than many other Countries, and there are lots of good tax breaks and reliefs available if you qualify.
One of these is Capital Allowances, which is where you can claim a deduction for any qualifying expenditure on equipment that you use in your business. This could include vehicles, machinery, IT equipment and buildings. Sometimes these expenses are allowed in full, and sometimes they are written off over a number of years, but calculating them correctly can massively reduce the amount of tax you have to pay.
There are numerous other smaller expenses that owner managed companies can take advantage of. For example, how would you feel about getting your company to legitimately pay your extra food bill at Christmas? Love a bit of gardening? There’s a way to get the company to help out towards this to! To find out more, watch the video below.
Contact Abacus Accountancy
Our expert tax advisers love sharing ways to help you reduce your Corporation Tax.
If you want some bespoke advice then please call 01376 343535 or get in touch below.