Corporation Tax, often referred to as company tax, is a crucial financial obligation for businesses in the UK, calculated based on their annual profits. This tax is distinct from personal income tax and does not include a tax-free Personal Allowance.
Corporation Tax Rates
- Standard Rate: Businesses with annual profits exceeding £50,000 are subject to a 25% tax rate.
- Lower Rate: Smaller businesses earning less benefit from a reduced rate of 19%.
Entities Required to Pay Corporation Tax
The obligation to pay Corporation Tax extends beyond limited companies to include:
- Foreign companies with a UK branch or office
- Clubs, cooperatives, community groups, and sports clubs
- Housing associations
Paying Corporation Tax
The process of paying Corporation Tax involves several steps:
- Registration: New companies must register with Companies House and HMRC. If the company was registered by post, with third-party software, or through an agent, separate registration for Corporation Tax with HMRC is required.
- Payment Deadline: The tax must be paid nine months and one day after the end of your accounting period to avoid penalties.
Consequences of Late Payment
Failing to pay Corporation Tax on time can lead to serious repercussions, including:
- Collection from wages or pension
- Legal action leading to court or bankruptcy
- Direct withdrawal from bank accounts
- Seizure and sale of assets
- Debt collection efforts
To avoid these consequences, it's crucial to communicate with HMRC if you anticipate payment difficulties, as they may offer arrangements such as payment plans.
Requirements for Registering for Corporation Tax
When registering for Corporation Tax with HMRC, ensure you have the following information ready:
- Your company's registration number
- The date your business started trading
- The closing date of your annual accounts
Conclusion
Corporation Tax is a fundamental aspect of operating a business within the UK, requiring careful attention to rates, deadlines, and the registration process. By understanding and adhering to these obligations, businesses can avoid penalties and maintain compliance with UK tax laws.
