A Comprehensive Guide to Paying Corporation Tax in the UK

Paying corporation tax is a fundamental responsibility for businesses operating in the UK. Understanding how to calculate, report, and pay this tax is essential for ensuring compliance with HM Revenue & Customs (HMRC) and avoiding potential penalties. This guide will walk you through the process step by step, offering practical advice tailored for UK-based companies.

What Is Corporation Tax?

Corporation tax is a levy charged on the profits of limited companies, foreign companies with a UK branch or office, and other unincorporated associations such as clubs or co-operatives. Unlike income tax, there is no personal allowance, meaning all taxable profits are subject to corporation tax.

Step 1: Register for Corporation Tax

When you set up a business, registering for corporation tax is one of the first steps you need to complete. If your company is incorporated through Companies House, HMRC will automatically be informed and will send you a Unique Taxpayer Reference (UTR).

You must then register for corporation tax within three months of starting to trade, which includes buying, selling, advertising, or employing staff. You can do this online via the Government Gateway.

Pro tip: Keep your login credentials safe, as you’ll use them to file returns and access other tax-related services.

Step 2: Understand Your Corporation Tax Rate

The current corporation tax rate (as of the 2023/24 tax year) is:

• 19% on all taxable profits for businesses with profits up to £50,000.
• 25% for businesses with profits exceeding £250,000.
• For businesses with profits between £50,001 and £250,000, the tax rate is tapered between 19% and 25%.

Ensure you’re aware of the rate applicable to your business, as this will influence your tax planning.

Step 3: Keep Accurate Financial Records

Maintaining thorough and accurate financial records is vital. HMRC requires you to keep records of all income, expenses, and transactions to ensure accurate reporting.

Your records should include:

• Bank statements
• Sales and purchase invoices
• Expense receipts
• Payroll records
• Details of assets and liabilities

Tip: Consider using accounting software like QuickBooks, Xero, or Sage to streamline this process.

Step 4: Calculate Taxable Profits

Your corporation tax liability is based on your taxable profits, which differ from your accounting profits. To calculate taxable profits, follow these steps:

1. Start with your accounting profit as shown in your profit and loss statement.
2. Add back disallowable expenses, such as entertainment costs or fines.
3. Deduct allowable expenses and reliefs, like Research and Development (R&D) tax credits.
4. Account for capital allowances on qualifying equipment or assets.

Consult an accountant if you’re unsure how to calculate your taxable profits accurately.

Step 5: File Your Corporation Tax Return (CT600)

Your corporation tax return, known as a CT600, must be filed online via HMRC’s portal. The deadline for filing is 12 months after the end of your company’s accounting period.

Filing Checklist:

• Have your company’s UTR ready.
• Include accurate profit and loss figures.
• Report any capital allowances and reliefs claimed.
• Attach accounts in iXBRL format (compatible with HMRC’s software).

Ensure all figures are accurate and supported by your financial records to avoid amendments or penalties.

Step 6: Pay Your Corporation Tax

Corporation tax payments are due nine months and one day after the end of your company’s accounting period. For example, if your accounting period ends on 31 March, the payment deadline will be 1 January the following year.

Payment options include:

• Online banking (BACS, CHAPS, or Faster Payments)
• Debit or corporate credit card via HMRC’s website
• Direct Debit (must be set up in advance)

Note: HMRC no longer accepts payment by cheque or at the Post Office.

Step 7: Claim Reliefs and Allowances

The UK tax system provides a range of reliefs and allowances to reduce your corporation tax liability. Some of the most common include:

• R&D Tax Credits: Available for companies investing in research and development activities.
• Annual Investment Allowance (AIA): Claimable on qualifying capital expenditures up to £1 million.
• Patent Box Relief: Offers a reduced tax rate on profits from patented inventions.

Check HMRC’s website or consult a tax adviser to ensure you’re claiming all applicable reliefs.

Step 8: Monitor Deadlines and Compliance

Staying on top of deadlines is crucial to avoid penalties. Key dates to remember include:

• Filing deadline: 12 months after your accounting period ends.
• Payment deadline: Nine months and one day after your accounting period ends.
• Record retention: Keep records for at least six years.

Common Mistakes to Avoid

1. Missing Deadlines: Late filing or payment can result in penalties and interest charges.
2. Incorrect Calculations: Errors in your tax return can trigger investigations or amendments.
3. Failing to Register: Delayed registration for corporation tax may result in fines.
4. Neglecting Reliefs: Failing to claim available reliefs can mean paying more tax than necessary.

Paying corporation tax can seem daunting, but with the right preparation and understanding, it’s a manageable process. If you’re uncertain about any aspect, consider hiring a qualified accountant or tax adviser. They can ensure your calculations are accurate, help you claim all eligible reliefs, and keep you compliant with HMRC regulations.

By staying organised and informed, you’ll not only meet your legal obligations but also position your business for financial success. For more detailed guidance, visit the HMRC Corporation Tax page.