Corporation Tax is a tax on the taxable profits of limited companies and other organisations including clubs, societies, associations and other unincorporated bodies. This guide gives you a basic overview of Corporation Tax. It tells you what Corporation Tax is, who's liable and what you must do and when if you are subject to Corporation Tax requirements. It outlines how the tax is calculated and what the tax rates are.
It also explains common HM Revenue & Customs (HMRC) Corporation Tax terms such as' Corporation Tax Self Assessment', 'accounting period' and 'taxable profits'.
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Corporation Tax is a tax on the taxable profits of limited companies and some organisations including clubs, societies, associations, co-operatives, charities and other unincorporated bodies.
Taxable profits for Corporation Tax include:
Read more about chargeable gains and Corporation Tax
If your company or organisation is based in the UK, you'll have to pay Corporation Tax on all your taxable profits - wherever in the world those profits come from.
If your company isn't based in the UK but operates in the UK - for example through an office or branch (known to HMRC as a 'permanent establishment') - you'll only have to pay Corporation Tax on any taxable profits arising from your UK activities.
Who is liable for Corporation Tax
See the 'taxable profits' section later in this guide for information on how taxable profits are calculated for Corporation Tax.
If your company or organisation is subject to Corporation Tax requirements you:
There are different deadlines for each of these requirements. If you don't meet those deadlines, your company or organisation may be charged interest and/or penalties.
Unlike other taxes such as Income Tax or VAT - where in most cases the filing and payment deadlines are identical - this is not the case with Corporation Tax. The deadline to pay your Corporation Tax is before the deadline to file your Company Tax Return. Generally you must:
For example, if your company or organisation's financial year runs from 1 April 2008 to 31 March 2009, and your Corporation Tax accounting period is the same, you must:
If your company's profits for an accounting period are at an annual rate of more than £1.5 million, you must normally pay your Corporation Tax for that period in instalments, all of which are due before the deadline to file your Company Tax Return.
Deadlines and requirements for Corporation Tax
Instalment payments of Corporation Tax
From 1 April 2011, you must submit your Company Tax Return to HMRC online for accounting periods ending after 31 March 2010. You must also pay any Corporation Tax that's due electronically.
Additionally your tax computations and, with very few exceptions, the accounts that form part of your Company Tax Return, must be submitted in Inline eXtensible Business Reporting Language (iXBRL) format.
More about switching from paper to online returns and paying electronically
Corporation Tax Online: setting up and managing your online account
Find more about paying Corporation Tax electronically
See a demonstration of submitting returns and managing your Corporation Tax online
You can deal directly with HMRC or you can appoint someone to deal with HMRC on your behalf for your Corporation Tax affairs. This is known as appointing an agent.
Appointing someone to deal with your Corporation Tax affairs
HMRC also uses the term 'Corporation Tax Self Assessment'. This simply means that that it's up to you (rather than HMRC) to work out how much Corporation Tax your company or organisation must pay for each Corporation Tax accounting period. In other words you 'self assess' your own Corporation Tax. You do this by filling in a tax return known as a Company Tax Return and sending it to HMRC.
Corporation Tax Self Assessment for limited companies and organisations is a different tax from Self Assessment for individuals, self-employed, sole traders or partners. One common feature is that you self assess your liability for the tax.
The Company Tax Return: the basics
Your company or organisation pays Corporation Tax on taxable profits for each Corporation Tax accounting period.
A Corporation Tax accounting period is different from similar terms used by other HMRC tax areas (such as VAT accounting periods) or other government agencies (such as Companies House accounting reference periods).
Your company or organisation's Corporation Tax accounting period is normally 12 months long. This accounting period normally matches your company's 12 month financial year. Your company's financial year begins and ends with the dates covered by your company's annual report and accounts (financial accounts) as submitted to Companies House. These accounts are sometimes called statutory accounts or audited accounts.
But in some instances your Corporation Tax accounting period won't be the same as your company's financial year if for example:
A Corporation Tax accounting period can be shorter than 12 months. For example, if your company accounts cover a period of less than 12 months, then the accounting period can be the same and you'll simply file one Company Tax Return covering that period.
A Corporation Tax accounting period can't be longer than 12 months. If your company accounts cover a period longer than 12 months and your company is active throughout, you must file two Company Tax Returns because you'll have two Corporation Tax accounting periods. This is the case even though you only need to file one set of accounts at Companies House.
For example, if your company has its accounts prepared for 15 months from 1 January 2008 to 31 March 2009, your Corporation Tax accounting periods will be:
You'll need to file two Company Tax Returns to cover these two Corporation Tax accounting periods.
To work out how much Corporation Tax your company or organisation will have to pay, you need to work out the profits you'll have to pay tax on, known to HMRC as your 'taxable profits for Corporation Tax'.
To work out your taxable profits, you start with your company's pre-tax profit figure (sometimes known as 'profit before tax') in your company's financial accounts for a financial year. You then:
You then:
Finally you deduct any Corporation Tax you've already paid, for example tax paid early, to find the amount of Corporation Tax you need to pay, or the amount of Corporation Tax you can claim back as an overpayment.
Your accountant will prepare your company's accounts using recognised accounting standards. But the profit figures calculated in this way don't necessarily represent the appropriate amount of profit on which to pay Corporation Tax.
Also, your company's accounts may cover a different period from your Corporation Tax accounting period (see the section above on accounting periods).
So you need to make those various calculations and adjustments to your accounting profit before tax to work out your taxable profit for Corporation Tax. You do this by completing and filing a Company Tax Return. A Company Tax Return includes a return form (CT600) and other supporting documents.
The Company Tax Return: the basics
For Corporation Tax, the tax year is called the 'financial year' or 'fiscal year' and runs from 1 April to 31 March. This is different from the tax year for individual taxpayers, which runs from 6 April to 5 April.
The Chancellor sets out the rates of Corporation Tax and various allowances, reliefs and credits in the Budget each year (usually in March or April) and also in the Pre-Budget Report the previous November/December. Normally any changes are announced one or more financial years in advance of the year to which they will apply.
There are currently two rates of Corporation Tax, depending on the company or organisation's taxable profits:
There is also a sliding scale between the lower and upper rates known as 'Marginal Relief'.
This means if your company or organisation's profits are over the lower rate but less than the main rate, the effective rate of Corporation Tax you pay rises gradually from the lower rate to the higher rate depending on your taxable profit.
Marginal Relief for Corporation Ta
If your accounting period doesn't run from 1 April to 31 March it spans two Corporation Tax financial years. You'll need to apportion your company's taxable profits between the two financial years on a time basis.
For example, if your company's Corporation Tax accounting period runs from 1 July 2008 to 30 June 2009:
Corporation Tax for new companies and organisations
Trading and non-trading explained for Corporation Tax
Records for Corporation Tax: what you need to keep
Unincorporated organisations and Corporation Tax
