What is a Corporation Tax Return?
A corporation tax return or form CT600 must be completed by all registered companies 12 months after their accounting period for corporation tax ends.
The CT600 (also known as a company tax return) is expected in cases of profit or loss and is used by HMRC to calculate how much corporation tax is due.
As part of the company tax return you need to include the companies accounts, tax computation and any other relevant supplementary information.
Company accounts are different to the company tax return and need to be sent separately to companies house.
Who pays corporation tax?
Corporation tax is payable by companies and is calculated based on taxable annual profits.
Taxable profits include money the business has made from investments, selling assets for more than their costprice and doing business.
Corporation tax is a legal requirement but not all businesses are liable to pay it. Sole traders, self employed and general partnerships have different ways of paying tax.
If your company is based in Britain then you pay corporation tax on all of your profits.
For limited company directors corporation tax is an important part of running your company.
What is included in my company tax return?
You need to make two calculations for filing your company tax return; your profit or loss for corporation tax and your corporation tax bill.
A profit or loss for corporation tax is usually different from the one shown in your annual accounts.
You can deduct your business running costs from your profits before you work out how much is taxable.
HMRC needs you to be able to show how you have ‘adjusted’ your taxable profit figure by including the applicable corporation tax allowances and reliefs.
How can I reduce corporation tax?
In a similar way to reducing any other tax bill if you can do it legally by making use of allowable deductions and reliefs you should.
To ensure you are not overpaying on corporation tax it is crucial to take advantage of every permissible deduction and expense available to your business.
There are a number of business expenses that can be claimed for which can be offset against your company profits.
In a similar way your company profits can be reduced by using specific tax reliefs that cover a variety of scenarios.
HMRC expects you to make use of tax reliefs and to claim back allowable business expenses so you pay an accurate amount of corporation tax.
Company tax return and capital allowances
The purpose of capital allowances is to offer tax relief for the depreciation of specific capital assets by allowing you to deduct their cost from your business’s taxable income.
There are different types of capital allowances with specific rules and you may not be able to claim the full expenditure on an asset in the accounting period it was purchased.
If you are a limited company a separate calculation for capital allowances must be included as part of your company tax return.
Common expenses that can be considered capital include vans, cars, machinery, tools, equipment, plant and machinery.
Company tax return allowable expenses
Expenses incurred in running your business are typically classed as allowable expenses that can be set off against your profit to reduce corporation tax.
A common company expense is employee salaries including employer national insurance contributions.
As a limited company director it’s worth considering paying yourself a salary from the company under PAYE being mindful that personal income tax will be payable on salaries over the tax free personal allowance.
If you decide to receive a salary as an employee of your business, you have the opportunity to claim this salary, along with the associated national insurance contributions (NIC) as allowable expenses.
Not all business expenses are deductible and anything that has a business and personal use is generally classed as a ‘benefit in kind’ to you or your employees.
Some common business expenses include:
- Business insurance like public liability and employers liability.
- Travel costs for business journeys.
- Accommodation expenses for business trips.
- Advertising and marketing.
- Business phone contracts.
- Business bank charges.
- Business loan interest.
- Professional subscriptions.
Tax relief for your Company tax return
Your business might be eligible for specific corporation tax reliefs. These reliefs could apply to:
- Any losses incurred by your company.
- Expenses related to research and development (R&D tax credits).
- Earnings from patents.
- Creation of certain creative media for example video games, television or films.
- Disincorporation relief if you change business structure to a partnership or sole trader.
When should I file a company tax return?
The deadline for submitting your company’s tax returns online is usually 12 months following the conclusion of your accounting period.
HMRC will issue a ‘Notice to deliver a Company Tax Return’ to your registered office. This notice will detail the specific deadline for filing your company tax return.
The deadline for submitting a company tax return is different to the one for paying any corporation tax that you owe to HMRC.
HMRC can hold a company director personally responsible for late filing penalties and inaccuracies on your company tax return.
How do I file my company tax return?
All corporation tax returns for accounting periods must be submitted online by using third party accounting software or software provided by HMRC.
If you intend to file your corporation tax return independently, you will need to create an online account with HMRC.
You will need to either download HMRC’s software or use commercial software capable of submitting the corporation tax return in the required format by HMRC.
Not all businesses can use the free HMRC software to file their company tax return. For more information you can visit the HMRC website regarding filing your corporation tax return.
At the same time you are required to submit the company tax return along with your tax calculation and financial statements.
Should you need to make any subsequent amendments, this can be done within 12 months following the corporation tax return filing deadline.
If any errors are identified after this period, you must inform HMRC, even though it is too late to alter your company tax return.
Corporation tax return late filing penalties
- 1 day after your deadline: £100 fine.
- 3 months after your deadline: Another £100 fine.
- 6 months after your deadline: HMRC estimates your corporation tax bill and adds a 10% penalty onto what it thinks your bill will be.
- 12 months after your deadline: An additional 10% is added to your estimated tax bill.
HMRC will increase the £100 penalties to £500 if your tax return is late three times in a row.
Corporation tax late payment penalties:
Not paying your corporation tax bill on time doesn’t come with late penalties however interest is charged by HMRC at the Bank of England base rate plus 2.5% on the outstanding tax due.
Corporation tax return penalties for mistakes
HMRC will not charge a penalty for a mistake if they believe you took reasonable care. If a penalty is charged it is based on a percentage of the extra corporation tax due after your mistake has been corrected.
A penalty can be less in cases where you tell HMRC about the error as soon as possible and make a full disclosure of all relevant facts.
This is called a prompted disclosure with heavier penalties available to HMRC for an unprompted disclosure.
| Error type | Unprompted Disclosure | Prompted Disclosure |
|---|---|---|
| Careless | 0% to 30% | 15% to 30% |
| Deliberate but not concealed | 20% to 70% | 35% to 70% |
| Deliberate and concealed | 30% to 100% | 50% to 100% |
What is the corporation tax rate?
From April 2023 there is no longer a single corporation tax rate of 19% which has been in place since April 2016.
The rate at which corporation tax is due is now determined by the value of taxable profits.
Small Profits Corporation TaxRate
The small profits corporation tax rate is 19% and applies to companies with profits under £50,000.
Main Corporation Tax Rate
The main corporation tax rate is 25% for companies with profits of over £250,000.
Marginal Corporation Tax Rate
The marginal corporation tax rate is relevant to profits in between the small profit limit of £50,000 and main corporation tax rate threshold of £250,000.
So if you have profits over £50,000 but below £250,000 the marginal corporation tax rate helps by gradually increasing the rate from 19% up to 25%.
You can use the .GOV marginal corporation tax rate calculator to figure out the rate that will be applicable to your corporation tax profits.
How do I pay corporation tax?
You must pay your Corporation Tax bill – or declare you have nothing to pay – by the deadline, usually 9 months and 1 day after the end of your ‘accounting period’.
HMRC give you a few different options when it comes to pay your corporation tax but post isn’t one of them.
To avoid missing the deadline you should take note of the length of time each payment option takes to get your money to HMRC.
Same day or next day
- online or telephone banking by Faster Payments or CHAPS
- through your online bank account
3 working days
- online or telephone banking by Bacs
- Direct Debit (if you’ve set one up before)
- online by debit or corporate credit car
- at your bank or building society
5 working days
- Direct Debit (if you have not set one up before)
What to do if you can’t pay your corporation tax bill
If you are unable to settle your corporation tax bill in full by the deadline, you might have the option to arrange a payment plan that allows you to pay it in instalments.
HMRC calls this a ‘Time to Pay’ arrangement but states “You will not be able to set up a payment plan if HMRC does not think you will keep up with the repayments.”
It’s important to let HMRC know as soon as you can because this may help stop or reduce penalties or interest and it makes HMRC aware that you are willing to pay the corporation tax you owe.
How to maintain records for your company tax return
It’s essential to keep track of your limited company’s expenses that are accurate and HMRC compliant.
Whether it involves business travel, fuel costs, or equipment purchases, ensure you keep both physical and digital copies of all receipts for six years.
It’s worth considering using a receipt management app of software or you could create an expense spreadsheet that can be updated and modified throughout the year.
Do I need a Corporation Tax Return Accountant?
You can submit your corporation tax return yourself or you can use an accountant to do it for you.
An accountant can complete and submit your corporation tax return to HMRC and keep you on track to meet deadlines for submissions and payment to HMRC.
A company accountant can maximise the use of available reliefs to keep your corporation tax bill as low as it legally can be.
Using an accountant also brings with it a useful layer of support to help you avoid mistakes on your company tax return and deadlines which can lead to costly penalties.
