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By miguel-ingles
- In Uncategorized
Corporation tax is one of the most important levies to take into consideration when forming a company. So, what does this duty consist of? How can you declare it? What rates authorities apply and under what circumstances? In this article, I explain the keys about Corporation Tax in the UK.
Which are the Keys about Corporation Tax in the UK
Corporation Tax is a levy that affects all companies that entrepreneurs establish in the UK. This duty taxes the profits that a corporation has made in a specific fiscal year.
Despite the latest increases to the British Corporation Tax rates, it is still more competitive than similar levies that you can find in other European countries. In addition, authorities offer certain benefits. For example, that a company can deduct its ordinary expenses from its annual income or that, if the company invests in research and development, it can apply for tax credits and reliefs.
Every limited liability business, like public or private limited companies or limited liability partnerships, must pay Corporation Tax. However, sole traders and the partnerships will not have to pay it. This is because His Majesty’s Revenue and Customs (HMRC) will tax the members of the latter as independent individuals based on their annual gains through Income Tax.
Corporation Tax Rates in the UK
There are different tax brackets for Corporation Tax in the UK. A company will pay one or the other according to its profits in the accounting year.
- If your company has earned profits over 250 000 GBP during the financial period, you shall pay a 25% of those.
- In case the enterprise has earned 50 000 GBP (60 000 EUR) or less as gains, you will pay a 19% of these.
- If you have had profits between the two previous brackets, you have to calculate the exact percentage that you will need to return. This is intended so that medium-sized companies do not suffer a sudden increase in this tax. You can make the calculation in this webpage.
On the other hand, there are special sections for companies engaged in certain economic activities. For example, the Ring Fence Corporation Tax applies to enterprises that perform exploitation and production of hydrocarbons. It stands at 30% on profits.
How to Declare Corporation Tax in the UK
First, companies must submit their tax return to the HMRC within 12 months after the end of the accounting period. That is, if the cycle ended 1 January 2024, the limit to issue it will be 1 January 2025. This tax return is composed of Form CT600 and the annual accounts of the business. You should take into consideration that, if you do not file the declaration in time, the HMRC imposes financial penalties.
On another note, the way to pay this duty will vary depending on the company’s turnover.
- Small and medium-sized enterprises. These corporations will have a 9 month and 1 day period after the end of the accounting period to pay Corporation Tax.
- Large companies. Authorities taxes the businesses that gain annual profits of over 1.5 million GBP on a quarterly basis. They will pay the first instalment 6 months after the end of the fiscal period. The other three payments will be made leaving 3 months of margin between one and the other.
In the event that the business does not pay in time, the HMRC will require the payment of interest.
Conclusion
If you want to set up a company in the UK, you will need to know all the ins and outs of the Corporation Tax in order to avoid fines and other legal problems.
Moreover, compared to other similar levies in neighbouring countries, the British tax conditions are somewhat more advantageous, especially for small and medium-sized enterprises. As a result, many entrepreneurs from European countries choose to form their businesses in the UK.
If you want to check the features, rates and how to pay other taxes in the UK, please check this article.
In ukstartcompany, you will find information about how to establish, register and operate companies with different legal structures and business activities in the UK.