Corporation Tax Returns Explained

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.

We cover corporation tax rates, filing dates and penalties, how to pay and more below:

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 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.

Tax relief and capital allowances

Depending on your business, you might be able to claim for; The Patent Box, Research and Development (R&D), Disincorporation Relief or Creative Industries Tax Relief.

There are also some capital allowances with set rates for business vehicles, equipment and machinery.

Allowable expenses

Expenses incurred in running your business are typically classed as allowable expenses and can reduce corporation tax.

A common company expense is employee salaries including employer national insurance contributions.

As a company director it’s worth considering paying yourself a salary from the company under PAYE being mindful that income tax will be payable on salaries over the tax free personal allowance.

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.

What is a Company Tax Return CT600?

A company tax return or form CT600 must be completed by all registered companies 12 months after their accounting period for corporation tax ends.

The CT600 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 CT600 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.

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.

Corporation tax deadlines and penalties

HMRC gives you a statutory filing date for your corporation tax return which if you miss will trigger late filing penalties.

HMRC can hold a company director personally responsible for late filing penalties and inaccuracies on 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 return late payment penalties:

Not paying your corporation tax bill on time doesn’t come with late penalties however interest is charged by HMRC at a rate of 3% 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 typeUnprompted DisclosurePrompted Disclosure
Careless0% to 30%15% to 30%
Deliberate but not concealed20% to 70%35% to 70%
Deliberate and concealed30% to 100%50% to 100%

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

3 working days

5 working days

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.

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