Among the financial and reporting obligations on limited companies in the UK is the requirement to notify HMRC of annual corporation tax liability.
This requires the company to:
- Inform HMRC that their company is liable to pay corporation tax.
- Pay the tax due on time.
- File the company tax return (CT600) along with any other supporting or explanatory documentation, before the relevant deadline.
What is a CT600?
Limited companies in the UK are required to file Form CT600, also known as a company tax return, to make their annual corporation tax submission to HMRC.
The CT600 is divided into various sections, requiring information relating to:
- Company & return data: your business name and type, the ten-digit company Unique Tax Reference (UTR) number, (this can also be found on the CT603 Notice), and accounting period.
- Tax calculation: the business’s turnover, profit-and-loss report, income and expenses.
- The declaration: the business account complete for submission, together with the name of the member of staff making the return.
Within these sections, the company must declare:
- The business’s capital gains
- The business’s expenditure
- Any non-trading income, such as income from investments
- Bank details for returns and refunds
Who needs to complete a CT600 form?
Companies pay corporation tax on profits they make from trading and investment income. Other organisations such as associations, societies, clubs and charities may also have to submit a CT600.
Therefore, if your business has made any profits, it will be liable to pay tax.
Your company’s profit is the total turnover for the financial year, less all outgoings such as salaries, mileage, and any expenses, and less any applicable allowances such as capital allowances. The company is liable to pay corporation tax on the remaining profit.
Deadline for filing the CT600
Your company tax return should be delivered after the end of the ‘accounting period’ but no later than the legal filing date, which is usually the later of:
- 12 months after the end of the accounting period or,
- 3 months after the company receives the Notice to request the filing of a company tax return for corporation tax (form CT603)
The corporation tax accounting period (CTAP)
Your accounting period for corporation tax is the time covered by your company tax return. In your first accounting period, you will receive a letter from HMRC (form CT603) giving you dates for your accounting period after you have registered your company for corporation tax.
The date will often be the same period for which the business accounts are drawn up and cover. The date on which the CTAP ends is important because it fixes the nine-month period of credit for the payment of tax, the instalment dates for tax payments by larger companies, and the time limits for claims and elections.
The table below summarises when a CTAP begins and ends. Different rules apply if a company is wound up.
When a CTAP Begins
When a CTAP ends
|When the previous CTAP ends||After the expiry of 12 months after the start of the CTAP|
|When the business first comes within the charge to corporation tax||When the company ceases to come within the charge to corporation tax|
|On starting to trade||When the company ceases to trade (provided there being no other trade still carried on)|
|On acquiring a source of income||On the date the company draws up its accounts|
|Becoming resident in the UK||When the company ceases to be UK resident|
You can change the company’s accounting date by completing Form 225 from Companies House. Whilst a company can shorten its accounting period, there are restrictions on extending it:
- You cannot extend a period, so it lasts more than 18 months
- You cannot extend the period more than once in five years (although there are rare exceptions to this rule, details of which can be found on the Companies House website).
Are there penalties for late filing of the CT600?
The penalty depends on how long you have overrun the deadline for filing:
- Deadlines missed by one day will incur a charge of £100
- Deadlines missed by three months will incur a charge of £200
- Deadlines missed by six months, HMRC will estimate your corporation tax liability and add 10% as a penalty
- Deadlines missed by 12 months, HMRC will add a further 10% onto your tax liability.
HMRC can charge a penalty if the return is inaccurate.
How to file the CT600
HMRC requires all company tax returns to be filed digitally via their gateway. You will need to obtain a gateway login to use this process. Form CT600 (version 3) must be used for accounting periods beginning on or after 1st April 2015 and can be found and downloaded from the gov.uk website.
Following submission of your online return, HMRC will send you an acknowledgement of receipt, but this does not mean HMRC has agreed to your figures. They have the power to amend the return and correct errors or omissions or anything else they deem is incorrect after reviewing the information available to them. HMRC can also make enquiries about the information provided within the return.
After filing, if you discover you have made an error on the return, you can apply to amend it, although this is subject to strict time limits.
The return declaration
This must include a declaration by the individual making it that the return is complete and correct to the best of their knowledge and belief. Intentionally giving false information in the return or concealing company profits can lead to both you and your company being prosecuted.
Corporation tax rates
For the year beginning 1st April 2022, the normal rate of corporation tax is 19%. If your taxable profits are attributable to the use of patents, a lower rate of tax applies; this rate is 10%.
From 1st April 2023, a new 25% rate applies to profits over £250,000, which will be tapered on profits between £50,000 and £250,000. Profits below £50,000 will continue to be taxed at 19%.
Allowances & reliefs
As stated above, the company tax return is based on the profit and loss of your financial accounts. However, these need to be adjusted in order to allow for the different ways in which corporation allowances and tax reliefs are treated.
Corporation tax allowances and reliefs help businesses minimise their corporation tax liability. It is worth taking a moment to understand how annual investments, other capital allowances, and allowable expenses work.
Capital allowances and the annual investment allowance
Capital allowances can be claimed for the purchase of most things, such as plant and machinery and business vehicles. Different types of expenditure qualify for different capital allowances. The annual investment allowance (AIA) is set at £1 million.
For capital expenses over the AIA, they are claimed as writing down allowances. The rates can vary, but at the time of writing stand at:
- 18% for the cost of most plant and machinery annually
- Lower ‘special rate’ of 6% applying to long-life assets, integral building features, and low emission cars
- From 1st April 2021 to 31st March 2023, there is a 130% first year allowance, instead of an 18% writing down allowance. Special rate purchases qualify for a 50% first year allowance.
On 29th October 2018, the government introduced the Structures and Buildings Allowance (SBA), which allows a deduction for new, non-residential structures and buildings by adding insulation. The SBA allows a deduction from profits annually at a rate of 3% (in 2020/2021) calculated on the original construction expenditure.
Capital allowances on company cars
Capital allowances on company cars depend on the cars’ level of emissions, and those short-life assets expected to last no more than four years. Cars do not qualify for AIA, but businesses can claim a 100% first year allowance on zero emission vehicles.
Additional assets which qualify for capital allowances
Additional business costs treated as ‘capital’ as opposed to an ‘overhead’ may also be eligible for capital allowances. These include:
- Patents: under the ‘patent-box scheme’, companies with income from using qualifying patents which they own or have exclusive licence to use only pay 10% corporation tax on that income. The profits must arise from patent rights sold by the business or licence, sales of patented goods or goods containing a patented invention, intellectual property infringement income, or damages and compensation relating to the patent rights. You must inform HMRC in your tax return within two years of the end of the accounting period to which the profits relate.
- Reliefs for creative industries (CITR): this applies if a company makes a profit from theatre, film, television, animation or video games.
- Relief on goodwill and other relevant assets: this relates to customer relationships and unregistered trademarks.
- Disincorporation relief: this applies if you are closing your company and becoming a sole trader, ordinary business partnership, or limited partnership.
- Research and development: tax relief is allowable on ‘qualifying’ research and development costs. You do not have to be creating or developing leading edge technology to claim the relief. Loss making businesses can use this tax relief to increase their losses and set them against previous or future profits or claim a cash tax credit. The rules vary slightly for larger companies.
Ordinary business expenses can, generally speaking, be set against profits. This is provided the expense is ‘necessary and is wholly and exclusively for business purposes.’ Although there are a few exceptions, such as entertainment and professional fees for company formation, but you can get tax relief for sponsorship or charity payments.
Employers’ pension contributions made to a registered pension scheme are generally an allowable expense, but the level of the contributions must be justifiable in business terms. Additionally, a staff uniform is an allowable expense, whereas a business suit is not. This is an important and complex area of tax planning, so taking advice is essential.
A separate corporation tax relief is available if your business makes a loss. This relief allows losses to be set against other income, for example, from investments or past profits. Or alternatively, you can elect to carry the losses forward to be set aside any future profits.
Group relief allows losses made by one business in a group of businesses to be set against the profits of another linked group company.
CT600 form FAQs
What is a CT600 tax return?
The CT600 form, also known as the company tax return, has to be filed with HMRC on an annual basis to declare your company's corporation tax liability.
Who needs to complete CT600?
All limited companies in the UK are required to complete and file the CT600 annually.
What is CT603?
The CT603 is the notice to file a company’s tax return.
The matters contained in this article are intended to be for general information purposes only. This article does not constitute legal or financial advice, nor is it a complete or authoritative statement of the law or tax rules and should not be treated as such.
Whilst every effort is made to ensure that the information is correct, no warranty, express or implied, is given as to its accuracy and no liability is accepted for any error or omission.
Before acting on any of the information contained herein, expert professional advice should be sought.