How to Pay Corporation Tax in the UK: A Guide for Business Owners

Navigating corporation tax is a crucial responsibility for any UK business. If you’re unsure where to start, this guide breaks down everything you need to know about how to pay corporation tax, from registration to submission. With accountants who specialize in tax compliance and optimization, managing your corporation tax obligations becomes much more straightforward. Here’s a complete look at the corporation tax process.

What is Corporation Tax?

Corporation tax is a mandatory tax that UK companies pay on their profits, covering all income after allowable expenses and deductions. Corporation tax in the UK stands at a rate of 19% (as of 2023), although this can vary based on specific allowances, deductions, and tax credits available to the company. Accountants can be valuable here, helping businesses to accurately calculate taxable profits and claim allowable reliefs.

1. Registering for Corporation Tax

Once you’ve registered your company with Companies House, the next step is to register for corporation tax with HM Revenue & Customs (HMRC). This is a crucial step and must be completed within three months of commencing business activities, such as hiring employees, incurring expenses, or earning income.

How to Register:

• Visit the HMRC online portal.
• Provide your company’s registration details, company address, and unique taxpayer reference (UTR).
• Set up an HMRC online account to file your tax returns digitally.

Failing to register for corporation tax on time can result in penalties, so it’s essential to do this early on.

2. Tracking and Calculating Taxable Profits

Corporation tax is payable on all profits your business earns from trading, investments, and even the sale of certain assets. Tracking profits accurately requires careful bookkeeping and financial reporting, which is where accountants play a pivotal role in minimizing tax risks and ensuring compliance.

Key Considerations:

• Include all income sources: Trading income, investment income, and capital gains are subject to corporation tax.
• Deduct allowable expenses: Salaries, rent, and utilities are examples of costs that can be deducted from your profits, which lowers your tax bill.
• Seek professional advice: Accountants can help identify deductions and credits specific to your business.

Maintaining accurate records not only ensures a smooth filing process but also minimizes errors that could lead to penalties.

3. Filing Your Corporation Tax Return

Corporation tax is due annually, and businesses are required to submit a corporation tax return (form CT600) to HMRC. The tax year for corporation tax is known as the company’s accounting period and is often aligned with your business’s financial year.

Steps for Filing:

1. Log in to your HMRC account.
2. Complete the CT600 form, detailing all income, expenses, and tax calculations.
3. Submit the form and pay any corporation tax due within nine months and one day after the end of your accounting period.

Accountants can assist in preparing and submitting accurate CT600 forms, as any errors can lead to tax audits or penalties.

4. Making Corporation Tax Payments

Once you’ve calculated your tax liability, it’s time to pay. The deadline for paying corporation tax is nine months and one day after the end of your accounting period. However, if your annual taxable profits exceed £1.5 million, you may be required to make quarterly installments.

Payment Methods:

• Online or telephone banking
• Direct Debit
• Corporate credit card or debit card
• Bacs, CHAPS, or Faster Payments

Keep in mind that delays in payment can lead to interest charges, so it’s essential to make your payment promptly.

5. Claiming Corporation Tax Reliefs and Allowances

The UK offers various reliefs that can reduce your corporation tax liability, which is where working with accountants is particularly beneficial.

Common Reliefs:

• Research & Development (R&D) Tax Credits: Available for companies engaged in research and development projects.
• Annual Investment Allowance (AIA): Deduct the cost of qualifying items such as equipment, machinery, and business vehicles.
• Patent Box: For businesses that earn income from patented inventions, this relief reduces the corporation tax rate on eligible profits to 10%.

Accountants specializing in tax planning can help identify and apply these reliefs, further reducing your corporation tax bill.

6. Using the HMRC Online Service to Manage Corporation Tax

The HMRC online service provides an accessible way for business owners to manage their corporation tax responsibilities. With this service, you can:

• View your corporation tax account balance
• Set up and manage payments
• Access previous returns and payment histories
• Contact HMRC for assistance

This portal is also an essential tool for ensuring timely submissions and payments, helping businesses avoid late filing penalties.

7. Working with Accountants to Ensure Compliance

Navigating corporation tax can be complex, particularly for small businesses that may lack in-house financial expertise. Accountants provide crucial support in maintaining compliance with HMRC requirements, offering advice on deductions, and ensuring accurate tax filings.

Why Work with Accountants?

• Tax Efficiency: They help you identify deductions and reliefs specific to your industry, minimizing your tax liability.
• Avoid Penalties: Accountants ensure timely submissions and accurate reporting to avoid fines and penalties.
• Financial Guidance: They offer valuable insights into your financial health, enabling better long-term planning.

8. Penalties for Late Submission and Payment

Late submission or payment of corporation tax can result in fines and penalties, so it’s vital to meet all HMRC deadlines.

Penalty Structure:

• Late Filing Penalties: An initial £100 fine, increasing with further delays.
• Late Payment Penalties: Interest charges on overdue payments.
• Audit Risk: Continuous non-compliance can trigger HMRC investigations, which may lead to higher penalties.

Ensuring timely filing and payments is critical, and accountants can assist in keeping track of these deadlines.

Conclusion

Paying corporation tax in the UK requires careful planning, accurate bookkeeping, and compliance with HMRC regulations. Understanding each step—from registration to filing, paying, and claiming reliefs—can reduce your tax burden and streamline the process. For expert guidance, accountants can be an invaluable resource, offering support in everything from tax planning to filing CT600 forms.