A guide to paying corporation tax
Limited companies in the UK are liable to pay corporation tax to HMRC on their profits.
The current corporation tax rate is 19% for the 2020/21 tax year. This is a standardised rate applicable to all businesses operating in the UK and is set by reference to a financial year (FY), from 1 April to 31 March.
Foreign companies with UK operations are also subject to corporation tax on their UK-generated profits.
A business becomes liable for corporation tax once it starts making a profit, unless it has previously made losses.
Companies are under a number of duties in relation to corporation tax:
- You must register with HMRC for corporation tax purposes within 3 months of starting to trade
- You must keep records of company income and expenditure for tax liability to be calculated
- Corporation tax must be paid electronically before the deadline
- Your company tax return (CT600) and supporting documents must be filed online by the statutory deadline.
If a company fails to meet the deadlines, they can be charged interest at 3% and/or be fined.
Paying corporate tax
You calculate how much corporation tax is payable when preparing the company’s annual accounts and filing the corporation tax return.
This will involve calculating the company’s profits from its trading activities, investments and asset disposals, and applying any corporation tax reliefs or allowances that may apply.
How to pay corporation tax online
Corporation tax must be paid electronically. You will also need to ensure you allow time for the funds to reach HMRC.
There are a number of ways of paying corporation tax online, though timings vary by payment method:
|Payment processing time (guide)||Payment method|
|Same/next day corporation tax payment||Telephone banking
Online banking. For online banking, the payee details are either:
Cumbernauld 083210 12001039
Shipley 083210 12001020
The default would usually be HMRC Cumbernauld, but you should check if the payslip (on the reverse) advises you to use the Shipley details.
|3 working days||BACS
Online debit or credit card payment
At your bank
|5 working days||First-time direct debit|
When paying corporation tax, you will need your unique reference number to ensure the payment is assigned to your company. This will be a 17 character code, made up of numbers and letters. You’ll find the reference on any payslip or correspondence from HMRC regarding your corporation tax (such as the ‘notice to deliver’) or through your company’s HMRC online account.
Corporation tax payment deadline
The deadline for paying corporation tax will depend on how much taxable profits you have made in the relevant accounting period.
If your profits are up to £1.5 million, corporation tax must be paid 9 months and 1 day after the end of your accounting period. This is usually the same as your financial year, but may be different in your first year of trading.
If your profits are above £1.5 million, the rules become more complex, and corporation tax has to be paid in instalments.
You can pay your corporation tax early, in which case, HMRC should pay you ‘credit interest’, currently at a rate of 0.5%.
You will receive a notice to deliver from HMRC informing you when your corporation tax payments are due.
The tax deadline for paying your corporation tax will be before the deadline for filing your company tax return.
If you miss the payment deadline, HMRC can charge the company interest at 3%.
Corporation tax return
Any limited company that has traded during an accounting period will need to produce accounts and file a form.
If the company has no corporation tax to pay, or has made a loss, you will still need to complete and file the company tax return on time.
A company must file a company tax return electronically no later than the statutory filing date. This is 12 months after the end of the accounting period or, if later, three months after the date on which HMRC deliver a notice to make a return.
Only in exceptional circumstances can the return be submitted in paper form.
It is possible to amend the return within 12 months of the statutory filing deadline.
Corporation tax financial year
Your company’s financial year is different to the tax year (which runs from 6 April to 5 April), and is usually the same as your corporation tax accounting period.
Your company’s financial year starts on the date specified in your Companies House registration as the day you started trading. The year-end falls on the day before that date in the next calendar year.
An accounting period starts either when the company first becomes chargeable to corporation tax or when the previous accounting period ends.
If an accounting period straddles 31 March, and there is a change in rates or limits between the two financial years, the profits are time-apportioned to the relevant financial years and tax is calculated according to the rates and limits applying for each financial year. The profits would be apportioned pro rata to the respective FY and charged to corporation tax at the corresponding rates.
Penalties for late returns
The following penalties can be applied if the corporation tax return is filed late:
- Flat rate penalty of £100 for late filing.
- Another penalty of £100 is charged if the return is more than three months late.
- If the return is late by six months, HMRC estimates the Corporation Tax bill and applies a penalty of 10% of the unpaid tax.
- A further 10% is charged after 12 months.
If the return is more than six months late, HMRC will issue a tax determination. This cannot be appealed against. The return must be filed and the corporation tax due must be paid. HMRC will then recalculate the interest and penalties due. An appeal against penalties can be made if there is a reasonable excuse for the late filing.
The initial penalty is increased to £500 if the company tax return is filed late for three or more consecutive accounting periods.
First-year trading rules
Companies in their first year may need to file two tax returns to cover two separate accounting periods. This is because, for tax purposes, the accounting period cannot be longer than 12 months. This means:
1. The first return will cover the first 12 months of trading.
2. The second return will cover the shorter period starting from the end of the 12 month period and running to the end of the month.
Payment will be needed in respect of each return, with a deadline of 9 months after the relevant accounting period ends.
Thereafter, only one tax return will be needed each year.
Register to pay Corporation Tax
As a limited company, you have to register with HMRC for corporation tax purposes within three months of beginning to trade. You can do this online via the .gov website.
‘Trading’ includes buying, selling, advertising, renting a property, and employing someone.
If you register late, the company can be fined.
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 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 legal or other advice should be sought.