In its most simplest definition, if you have a limited company, you would need to pay tax on your profits. This is called Corporation Tax. You would also need to pay corporation tax if you are an association, a club or co-operative. If you are a sole trader or a partnership, your profit is not subject to corporation tax and any tax you have to pay will be through your self-assessment.
How is corporation tax calculated?
The first thing you need to know when calculating your tax return is your company’s year-end. Using this information, you calculate how much sales you made in your accounting year and take off all the expenses relating to your business for that year. The figure you are left with is the profit for your accounting year.
Corporation tax at the moment is 19% of your profits for small companies. This tax rate can change with the budget so it is always best to check the rate for the year you are looking at. You can find more information about the rates on this link https://www.gov.uk/corporation-tax-rates/rates
If your company year-end overlaps tax years and the tax rate has changed, you would need to calculate the corporation tax at two different rates. The profit would need to be apportioned between the start of your company year to the end of the tax year and then from the start of the new tax year to the end of your company year. Tax is then calculated on a pro rata basis at the two different rates on each portion of the profit.
When is corporation tax due?
Corporation tax payment is due 9 months and a day after the year end. The corporation tax return or the CT600 needs to be filed 12 months after the year end. If your payment is late, you will be charged interest. If you file your tax return late, you will have to pay a penalty.
When do you register for corporation tax?
You can register for corporation tax as the same time as forming your limited company using this link: https://ewf.companieshouse.gov.uk/runpage?page=welcome
If however, you didn’t register at companies house in this way, you can then follow this link to register for corporation tax: https://online.hmrc.gov.uk/registration/newbusiness/introduction You need to ensure you register within 3 months of starting to do business.
How does dividends fit in with all this?
If you want to take dividends out of your company, you can take this from the profit you have left after you have paid your corporation tax. In other words:
| Sales | X |
| Less Costs | (x) |
| Profit | X |
| Less CT @ 19% | (x) |
| Net Profit | X |
| Dividends | (x) |
| Profit carried forward to next year | x |
Tax Planning Points
One final point to remember as a director of a limited company, that as well as paying your corporation tax 9 months and a day after the year end, you also have to pay self-assessment tax as a director on all your individual income by the 31st January.
You may, therefore, want to consider when your year-end will be if you want to stagger your payment throughout the year. If your year end is at 31st December, then your corporation tax will be due on 1st October. If your year end is 31st March, then your corporation tax will be due on 1st January. You can have other year ends, but these examples are the two most common year ends.
Please find attached the May Tax Dates to download:
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