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Corporation Tax Return Preparation, Filing and Advice

What is Corporation Tax?

Corporation Tax in the UK is a tax that limited companies need to pay on their profits.

Unlike individual tax payers’ companies don’t have a ‘personal allowance’ so as soon as your company starts making a profit, it needs to start paying Corporation Tax (unless it’s previously made losses). 

Companies pay Corporation Tax on the profits made from doing business (‘trading profits’), its investments, and selling assets for more than they cost (‘chargeable gains’).

The Corporation Tax Rate is currently 19% but its due to fall to 17% by 2020.

 

Do I need an Accountant to prepare a Corporation Tax Return?

Unless you have accountancy and tax training the sensible answer is yes. There are various allowances and deductions available for corporation tax calculations and they can result in significant tax savings. Using an accountant to prepare your corporation tax return will cost you a fee – but can save you more in tax. Doing it yourself and getting it wrong can also result in fines and tax penalties.

If you would like a free no obligation meeting to discuss how we can help with your company accounts and corporation tax return just get in touch.

To find out more about corporation tax and how we can help read on.

Registering for Corporation Tax

One of the first things a new company must do is small business must do when setting up is register for Corporation Tax.

You’ll need your company’s 10-digit Unique Taxpayer Reference (UTR). This is posted to your company address by HM Revenue and Customs (HMRC), usually within a few days of the company being registered with Companies House (incorporated).

When registering, you’ll need to tell HMRC:

  • your company’s registration number
  • the date you started to do business (your company’s first accounting period will start from this date)
  • the date your annual accounts are made up to

HMRC will tell you the deadline for filing your return and paying Corporation Tax.

You’ll need to file a Company Tax Return, even if you make a loss or have no Corporation Tax to pay.

If you have asked us to set up a new company for you, we will complete the Corporation Tax Registration. You can read about this on our Company Formation Page.

If you would like a free no obligation meeting to discuss how we can help with your company accounts and corporation tax return just get in touch.

Calculating Corporation Tax

Your annual accounts form the basis of the trading profit or loss that will appear in your Corporation Tax Return. However, there are various adjustments and allowances that need to be applied to arrive at the final taxable trading profit or loss.

You can read about company accounts on our statutory accounts page.

Some examples of these adjustments and allowances follow. Please note – this is not a complete list. There are too many tax rules to mention here but as you can see it can be difficult to work out all the reliefs you are entitled to and get the right information to HMRC.

Non-tax-deductible expenses – Some expenses incurred by your business may be non-tax deductible. You cannot deduct them when calculating your business profit. Examples include entertaining clients and certain legal expenses.

Use of home as office If you run your business from home you can claim an allowance called ‘use of home as office’. If your business use is minimal this will be a flat daily rate. If your use of home is more substantial we can calculate a figure each year using your actual household bills and council tax and using an appropriate percentage of these costs.

Capital allowances

The assets of your business are items you buy to keep and use in your business, such as computer equipment, machinery and office furniture and cars. The general term for such items is ‘plant and machinery’.

The cost of these items is not deducted as an expense through your Income and Expenditure Account. Instead you need to keep a record of them – the date of purchase and cost and claim ‘capital allowances’ – which are an adjustment (deduction) to your taxable profits.

In most cases you can deduct the full cost of these items from your profits before tax using the Annual Investment Allowance which is currently £200,000. That means that if you have profits of £200,000 and have spent £80,000 on qualifying assets your taxable profits are reduced to £120,000.

You can’t use the annual investment allowance for most cars and if your expenditure on capital assets exceeds the annual allowance.

In these cases, capital allowances are claimed as a ‘writing down allowances’. Assets are placed into pools of expenditure and a percentage of the pool value is allowed as a deduction against profit. The percentage depends on the type of asset.

It’s worth noting that you don’t have to claim capital allowances immediately. If your taxable profits are less than the personal allowance a capital allowances claim would be a waste as you a reducing a non-taxable profit to a smaller non-taxable profit. If you defer claiming capital allowances on an asset you purchase, you cannot claim the Annual Investment Allowance and must claim Writing Down Allowances. These terms are explained below. Waiting and claiming a Writing Down Allowance when the business is more profitable is more tax efficient than ‘wasting’ an Annual Investment Allowance.

Capital allowances are a complex area and further guidance can be found on the HMRC website at

https://www.gov.uk/capital-allowances

Trading Losses

Trading losses can be utilised in a variety of different ways. The optimum way to utilise a loss depends on the timing of the loss and the circumstances of a company. In some circumstances a loss can be used to generate a refund of tax paid on trading profits from an earlier period.

If you would like a free no obligation meeting to discuss how we can help with the most tax efficient use of your trading losses get in touch for a free, no obligation consultation.

What is the deadline for filing a Corporation Tax return?

The deadline for your corporation tax return is 12 months after the end of the accounting period it covers. You’ll have to pay a penalty if you miss the deadline. There’s a separate deadline to pay your Corporation Tax bill. It’s usually 9 months and one day after the end of the accounting period.

What are the fines if a Corporation tax return is late?

If your Corporation Tax return is late you will be fined £100. When it is 3 months late you will be fined a further £100. At 6 months HMRC will estimate your Corporation tax bill and add a penalty of 10% of the tax. A further 10% of the tax estimate will be charged when the return is 12 months late.

What happens if Corporation tax is paid late?

HMRC charge interest at a daily rate if Corporation tax is paid late. You will receive reminder letters and then the matter will be placed with the HMRC debt management team.

If you know that you are going to be unable to meet the tax deadline, then you should contact HMRC on their support line as soon as possible and ask for a Time to Pay Arrangement.

HMRC are going to ask for a lot of information when you speak to them and we advise that you ask an accountant who is familiar with your affairs to be with you when you call HMRC to discuss terms.

HMRC may accept a Time to Pay Arrangement, but you will be expected to demonstrate that the company can afford to repay the tax over a maximum of twelve months along with any other tax debt or tax liability that will be due within this taxable period. Your company’s cash flow and financial status will also be considered before any payment plan is considered.

Be aware that if you have an overdrawn director’s’ loan account they will want this repaying immediately before any time to pay arrangement, or instalment payments, would be considered.

HMRC may ask you to provide current management accounts and cash flow forecasts to establish how much of the tax liability you can pay immediately and how long you may need to pay the rest of the balance.

HMRC will not agree for a Time to Pay Arrangement for a period of longer than twelve months. In addition, during this period, HM Revenue & Customs will expect you to maintain other tax payments i.e. both VAT and PAYE will need to be paid in a timely manner.

If you do not pay the tax debt in full or negotiate a settlement of the tax liability HMRC will either seize the company’s assets (distraint) wind up your company using a winding up petition. This is also known as compulsory liquidation and will of course mean your company ceases trading permanently.

If you know you will be unable to pay your Corporation tax and want help dealing with HMRC just get in touch for a free no obligation consultation.