Small Business Corporation Tax

 

If you establish a small business as a limited liability corporation, your annual profits will be liable to small business Corporation Tax.

Your accountant is your first line of support. However, it is the responsibility of the board of directors to oversee the company’s tax compliance with the support of their accountants.

Duties as a Director

Your duties as a director of a small business limited liability company include verifying the accuracy of the corporation tax liabilities, filing the corporation tax return (form CT600) with HMRC on time, and making timely payments of the corporation tax owed.

If you are forming a limited liability company for the first time in the United Kingdom, you may find this summary of the corporation tax regulations applicable. Information about the upcoming tax increase in 2023 is also included.

Who Owes Company Tax?

In the United Kingdom, corporation tax is due by all limited liability companies. The tax is determined as a portion of a business’s annual profits.

Partnerships and single proprietorships are exempt from paying corporation tax. These business owners are classified as self-employed and will use an annual self-assessment to pay taxes on their business profits.

Company Incorporation

As soon as you’ve finished forming your limited liability business, Companies House will inform HMRC of your limited company.

HMRC will send, at the company registered address, the company’s unique tax reference number (UTR) for corporation tax return filing.

Please pass the UTR to your accountants. They will apply for agent authorisation to manage your new company’s tax affairs.

Self Assessment for Corporation Tax – CT600

Your small limited company needs to file an annual corporation tax return as part of its compliance obligations (Form CT600). Online submission of tax returns to HMRC is now mandatory for all corporate returns.

Even though your accountant will produce and file the CT600 and the associated documentation, a limited company director is responsible for ensuring correct information. Though, with a good accountant, you can put your mind at rest on this front.

The corporation tax return (CT600) includes your:

• Company name
• Company registration number
• Company’s registered office address
• Company’s UTR.
• Revenue and earnings for the period
• Calculation of corporation tax
• Details regarding any sought exemptions and reliefs, such as capital allowances

 

The CT600 form is eleven pages long and requires many financial data points. However, your accountant will prepare the CT600 and send it to you for your approval.

 

Accounting Periods

You can choose a shorter accounting term. But twelve months is the norm. Your accountant may also suggest that other statutory requirements change at the end of your fiscal year.

What Are The Rates of Corporation Tax at The Moment?

In the past, the United Kingdom had two different corporate tax rates. The “little profits rate” and the “major rate” are these terms. A few percentage points separated the “small profits rate” of corporation tax from the “major rate” of corporation tax. That meant this tax rate applied to companies with profits up to £300,000.

Companies with profits of more than £1.5 million were subject to the standard rate of corporation tax. Businesses with profits falling between £500,000 and £1.5 million were eligible for “marginal relief.”

With the consolidation of the “small profits rate” and the “major rate” of Business Taxes in April 2015, the United Kingdom now has just one Corporation Tax rate, making the concept much easier to grasp. For tax years that begin after April 2015, it will no longer be necessary to calculate marginal relief due to this simplification.

Corporation Tax in the UK is now levied at a rate of 19% (2022/23)

From April 2023, Corporation Tax Will Go Up

The rate of CT would rise to 25% starting in April 2023, the Chancellor of the Exchequer said in the March 2021 Budget.

Significantly, a new taper relief mechanism will subject enterprises with profits between £50,000 and £250,000 to taxation. This suggests that enterprises with revenues between £50,000 and £250,000 will be subject to the new system, while those with profits of £50,000 or less will continue to pay the standard rate of 19%.

According to the Chancellor, the new rules would only increase tax liability for 10% of businesses, while the remaining 70% will continue to pay tax at the same rate of 19%.

Deadlines and Penalties for Corporation Tax

Depending on when your company’s fiscal year ends, your accountant may submit your CT600 return before or after the legally required filing date. The deadline for filing the return is 12 months after the end of the accounting period.

To ensure you do not incur any penalties for late filing of CT600, please provide the information with your accountant’s requests, as soon as possible.

The deadline for paying your corporation tax bill is 9 months and one day after the end of your accounting period.

For practicality, CT600 submission and payment of corporation tax is normally done at the same time. This is 9 months and one day after the end of your accounting period.

Maintaining Tax Records

Legally, you must preserve business records for a minimum of six years, but if you have the room, keeping them longer is a good idea. The records contain all invoices, receipts, payments, and tax-related paperwork.

HMRC states that keeping records in a legible alternative is acceptable, like an optical imaging device that scans paper documents into a computer. Currently, online accounting makes it simple to store tax papers.

Your Obligations 

To summarize this guide, when starting a business, many challenges might compete for your attention, and taxes are often pushed to the back burner in favour of more pressing worries. However, it is essential to note that businesses that pay their taxes late face severe penalties. Therefore, small business owners should have a good understanding of their tax obligations. Southside Accountants in Wimbledon are here to support you.