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Understanding Corporation Tax

Corporation Tax is often a little complicated to get your head around, but we’re here to explain exactly what it is, and how it works.

As a Contractor, you must pay Corporation Tax on profits from doing business as a limited company or any foreign company with a UK brand/office. You don’t get a bill for Corporation Tax. There are specific things you must do to work out, pay and report your tax.

If your company is based in the UK, it pays Corporation Tax on all its profits from the UK and abroad.If your company isn’t based in the UK but has an office or branch here, it only pays Corporation Tax on profits from its UK activities.

You pay Corporation Tax at the rates that applied in your company’s accounting period for Corporation Tax. Your ‘accounting period’ for Corporation Tax is the time covered by your Company Tax Return. It can’t be longer than 12 months and is normally the same as the financial year covered by your company or association’s annual accounts. It may be different in the year you set up your company.

Below are the steps you need to take:

  1. Register for Corporation Tax when you start doing business or restart a dormant business.
  2. Keep accounting records and prepare a Company Tax Return to work out how much Corporation Tax to pay.
  3. Pay Corporation Tax or report if you have nothing to pay by your deadline – this is usually 9 months and 1 day after the end of your ‘accounting period’.
  4. File your Company Tax Return by your deadline – this is usually 12 months after the end of your accounting period.

You may be able to get deductions or claim tax credits on your Corporation Tax. These are known as reliefs. Work out your profits when you prepare your Company Tax Return.

Your accountant can submit your CT600 return any time between the date of your company year-end your statutory filing date. E.g. If your accounting year end is 31st December, then your corporation tax payment will be due by 1st October of the following year. If you submit your corporation tax return late, or the contents are inaccurate, you – and not your accountant – will be charged a penalty.

Finally, you must pay your company’s corporation tax liability to HMRC electronically. If you are late paying, you will be charged interest. To learn more about Corporation Tax, please do get in touch. We’d be happy to help!

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