The owner of a new limited company will need to know what his/her responsibilities are regarding Corporation Tax. This tax liability must be calculated and paid at the end of each financial year. Obviously, the limited company must determine its profits on an annual basis. This will include deciding if dividends are to be issued and whether to grant additional shares. These financial considerations must be agreed by the company’s board of directors. The following paragraphs outline what you need to know about corporation tax and how to account for it.

What is Corporation Tax?

Corporation Tax is payable on the limited company’s taxable profits each and every year. This is calculated by working out the company’s taxable income, investment profit and capital gains. The company owner must be aware that Corporation Tax is also payable on any non-Sterling profits made on investments in any company which is based abroad.

Getting assistance from a Corporation Tax agent

Sole Traders can and usually do complete their tax returns themselves. However, it is imperative that limited companies use the services of a qualified accountant or tax adviser. These professionals will complete the paperwork on behalf of the company owner and ensure everything is done properly and according to current legislation. They will be familiar with the HMRC (Her Majesty’s Revenue and Customs) requirements and thus save the limited company owner the bother of negotiating through the bureaucratic process. HMRC should be notified when a qualified Corporation Tax agent is employed by a limited company. This can be done through the HMRC Corporation Tax online authorisation system. There is also the option of Form 64-8 which can be completed and returned to HMRC.

Calculating Corporation Tax personally

A limited company can calculate the rate of Corporation Tax payable by using the Corporation Tax Self-Assessment form. It is the responsibility of the limited company to provide accurate data and amounts. This process is similar to how a Sole Trader does his/her tax returns.

Corporation Tax rates

There are two rates of Corporation Tax, and which one the limited company pays will depend on the profits it earns. These are outlined below:

Upper RateThis is known as the ‘full rate’ or ‘main rate’.

Lower RateThis is sometimes referred to as the ‘small profits’ rate.

If the profits are higher than the lower rate and lower than the higher rate, the limited company can apply for ‘Marginal Relief’. This can be applied for by entering the information into the relevant box on the Corporation Tax return. Relief is usually approved for profits between £300,000 and £1.5million.

When is Corporation Tax required to be paid?

Limited companies need to pay their Corporation Tax within one year of their accounting period end.  If the deadline for Corporation Tax filing, or ‘statutory filing date’, is missed or late, the HMRC may impose a fine. This is when the assistance of a Corporation Tax agent is valuable and effective. These experienced professionals will ensure that all the paperwork is submitted correctly and on time, leaving the company owner free to operate the business without having to worry about the bureaucracy.