When is corporation tax due? A guide to UK corporation tax for small businesses

UK limited companies pay corporation tax on their profits. But what is corporation tax, when is it due, and what are the rates?

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What is corporation tax?

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

Corporation tax is essentially an income tax for companies, but the difference is that companies don’t have a personal allowance. This means that as soon as your business starts making a profit, it needs to start paying corporation tax at the 19 per cent rate (unless it’s previously made losses).

What income does a limited company pay corporation tax on?

A company needs to pay corporation tax on the profits it makes from doing business (‘trading profits’), its investments, and selling assets for more than they cost (‘chargeable gains’ – company assets include land and property, equipment and machinery, and company shares).

Registering for corporation tax

Registering for corporation tax with HMRC is one of the first things you should do when setting up your limited company. You can do this on the gov.uk website. You have to register within three months of starting to trade, which includes:

• buying
• selling
• advertising
• renting a property
• employing someone

If you register late, you may get a penalty, so make sure registering for corporation tax is at the top of your checklist when starting out.

What are the corporation tax rates?

The corporation tax rate for company profits is 19 per cent. This is now a standardised rate for all businesses. In 2016-17, the corporation tax rate was 20 per cent. Prior to April 2016, the rate depended on how much profit your company made.

The current government has committed to keeping the corporation tax rate at low levels.

That being said, while the rate was due to drop to 17 per cent starting 1 April 2020, the government announced at Budget 2020 that it will remain at 19 per cent.

How much is corporation tax for a limited company?

You need to pay the rate that applied in your company’s accounting period for corporation tax (the time covered by your company tax return).

You can check your company’s accounting period by signing in to HMRC’s online service. It’ll usually be in line with your company’s financial statements and annual accounts. Most businesses have a 12-month accounting period – your accounting period can’t be longer than 12 months.

When is corporation tax due?

This is where corporation tax gets complicated, because the payment deadline differs from other taxes, and depends on your accounting period:

• you need to pay corporation tax before you file your company tax return
• the deadline to pay is nine months and one day after the end of your accounting period for your previous financial year – so if your accounting period ends on 31 March, your corporation tax deadline is 1 January
• but you need to prepare your company tax return to work out how much corporation tax to pay – even though the deadline to file your company tax return is later (12 months after the end of the accounting period it covers)

If you've just started your small business, you may have two corporation tax accounting periods, as your accounting period can’t be longer than 12 months.

For example, if you start your business in January, your first accounting period can go up to 31 March, when you’ll start a full 12-month accounting period.

Businesses with more than £1.5 million in profits will need to pay their corporation tax in instalments, so the process is different. And, even if your company is loss-making and you have no corporation tax due, you still need to declare that to HMRC.

Read more about how to file a company tax return.

What are the corporation tax allowances?

There are some corporation tax allowances available when working out how much tax you owe. You can deduct the costs of running your business from your company’s profits before tax when you prepare your accounts. But, if you or your employees get use from something, it must be treated as a benefit.

Some examples of allowable expenses for limited companies include mileage, accommodation, and training. These expenses must be necessary to the business and ‘wholly and exclusively’ for business purposes. This essentially means that you don’t also use them in a personal capacity.

Some costs of running your business aren’t allowed for corporation tax, such as entertaining clients.

Buying business assets that you keep to use in your business, such as equipment, machinery, and vehicles, can’t be deducted from your company’s income when calculating your taxable profit. In these instances, you may be able to claim capital allowances.

What are the corporation tax reliefs?

There are corporation tax reliefs available that you could use to minimise your corporation tax bill:

• Research & Development (R&D) relief: you may be able to claim this if your company works on innovative projects in science and technology
• The Patent Box: a lower rate of corporation tax is available on profits earned from patented inventions and certain other innovations
• Creative industry tax reliefs: this allows companies in the creative industries (film, television, video gaming, etc) to claim a larger deduction when calculating taxable profits
• Disincorporation Relief: a relief that allows a company to transfer assets to its shareholders (for instance when it changes from a limited company to a sole trader or partnership) without the company incurring a corporation tax charge on the disposal of those assets
• Terminal, capital and property income losses, and trading losses: you could be eligible if you make a loss from trading, the sale or disposal of a capital asset or on property income
• Marginal Relief: this may be available if your company had profits between £300,000 and £1.5 million that were from before 1 April 2015
• Relief of goodwill and relevant assets: after April 2019, the rules changed so you may be able to get relief on some purchases of goodwill and relevant assets

How to pay corporation tax

You pay corporation tax once you’ve worked out how much you owe and when it’s due.

Bear in mind that you need to allow time for your payment to get to HMRC, depending on your payment method:

HMRC has now stopped accepting payments by personal credit card.

What about Covid-19 and corporation tax?

While the government has introduced a number of measures to help the self-employed during the coronavirus outbreak, there hasn’t been anything specific announced for corporation tax.

If you’re struggling, HMRC has a Time to Pay service that you might be able to use to spread the cost of your tax bill.

So if you haven’t already received a payment demand letter, you should call HMRC on 0300 200 3835 to discuss Time to Pay. If you have received a letter, you can get in touch with the HMRC office that sent you the letter.

The ICAEW has also suggested that coronavirus can potentially count as a ‘reasonable excuse’ for filing a late corporation tax return.

Is there anything more you would like to know about corporation tax? Let us know in the comments below.