If you run a business in the UK, you might have asked yourself the question ‘What is Corporation Tax?’. Simply put, Corporation Tax is a tax on the profits of limited companies and some other organisations in the UK.

The amount you owe depends on how much profit your company makes, with different rates applying on earnings. Understanding Corporation Tax and how it works can help you stay on top of your business finances and avoid any nasty surprises from HMRC.

What is Corporation tax?

Corporation Tax, also known as Company Tax, is a tax that businesses pay on their profits. Unlike Income Tax, which applies to individuals, this tax is specifically for companies. It covers profits from trading, investments and selling assets like land or shares.

Who needs to pay Corporation Tax?

Not every business is required to pay Corporation Tax, but if your company operates in the UK and makes a profit, it’s likely you’ll need to factor it into your finances. Here’s a breakdown of which businesses are liable:

Limited companies

If you run a limited company, you’re required to pay limited company tax on your taxable profits. This applies whether your business is big or small.

Limited Company Tax Returns

Foreign companies

Corporation tax also applies to foreign companies with UK branches or offices. If your business makes money in the UK, you might need to pay tax here too.

How much is Corporation Tax in the UK?

The amount of Corporation Tax you pay depends on your profits. The Corporation Tax rates that UK businesses face can change, so it’s important to stay up to date. Currently, companies with profits up to a certain threshold pay one rate, while those earning more may pay a higher rate.

When and how to pay to pay Corporation Tax

Once you know that your business needs to pay Corporation Tax, it’s important to understand when payments are due and how to handle the process correctly. Missing deadlines can lead to penalties, so staying organised is key. Here’s what you need to know:

Filing deadlines

Companies must file a Corporation Tax return every year, even if they have no tax to pay. The deadline for paying Corporation Tax is usually nine months and one day after the end of your accounting period.

HMRC process

To pay your business tax, you’ll need to:

  1. Register for Corporation Tax with HMRC.
  2. Work out your taxable profits.
  3. File your tax return on time.
  4. Pay what you owe before the deadline.

What happens if you don’t pay Corporation Tax?

Ignoring your company tax obligations in the UK can lead to serious trouble. If you miss deadlines, HMRC can issue penalties and interest charges, making your bill even bigger. Repeated failures to pay could even result in legal action against your business.

Tax Deadlines

Tips for managing Corporation Tax

When it comes to staying on top of your Corporation Tax, here are a few things to consider:

  • Stay organised: Keep track of deadlines and set reminders to avoid late penalties.
  • Claim allowances: Make sure you take advantage of tax reliefs and deductions available to your business.
  • Get professional help: If you’re unsure about anything, working with a tax expert can help keep your finances in order.

Understanding Corporation Tax doesn’t have to be complicated. Want to know more about business tax and how to stay compliant? Check out this guide on tax evasion risks in different industries to make sure your business is on the right track.

Stay on top of your taxes with RIFT

Managing your Corporation Tax is key to keeping your business running smoothly and avoiding penalties. If you’re unsure about your tax return or want to make sure you’re not missing out on any refunds, RIFT Refunds is here for you. Get in touch today, and let us make tax time easier for you or check out our tax calculators for more.