Businesses in the UK are bound to pay the corporation tax if they function and garner profit as any one of the entities mentioned in the list below:
- A limited company
- A foreign company with a branch or office in the UK
- A club, cooperative or any other unincorporated company (social groups and games clubs)
The biggest factor to keep in mind is that the corporation tax does not arrive as a tax sheet or a bill that is drafted in the name of your company. As the business owner, it is your responsibility that you understand, work out, report and pay the corporation tax on time. Business owners of active companies (sometimes even dormant companies) have to file and pay the corporation tax at the end of every financial year. It is extremely crucial that the corporation tax is duly filed and paid on time, as a failure to do so can result in severe penalties by the Her Majesty Revenue & Customs (HMRC). The on-time filing of the corporation tax assists organisations in meeting the legal and compliance obligations and avoiding being penalised by the HMRC. It is important that business owners understand all the aspects of the corporation tax so that they can work out which allowances their business qualifies for, which would help choose methods that can reduce their overall tax liability.
All companies that make a profit in their business are expected to pay the corporation tax. Business profits are valued as the monetary profits companies make after clearing the expenses, wages and overheads incurred for business operations. Not just this, companies are also bound to pay the corporation tax on any money they make via business investments or via the sale of assets at a value that is more than what the assets were originally bought for (chargeable gains). If a company is based in the UK, the corporation tax is levied on profits that are made in the UK as well as abroad. On the other hand, if a company operates in the UK but has its headquarters in some other country, then the corporation tax is only levied on the profit made in the UK.
How to complete corporation tax return?
It has now become mandatory for companies to file corporation tax return online. To do the same, companies will first have to register themselves with the HMRC, after which they will receive their user ID and password. For documents, companies will have to submit the CT600 form along with their accounts and corporation tax calculations. Businesses also have to register with the Companies House to file their confirmation statements. Registration to the Companies House can be either online or via post. For online registration, the same process as the HMRC has to be followed. However, it should be remembered that registration with the HMRC and the Companies House are two separate undertakings, and registering with one doesn’t automatically register a company with the other. Companies can also jointly file their returns on the HMRC website.
What information has to be provided for company tax return?
Companies when filing for the corporation tax return will have to provide details about their statutory accounts. Companies will also have to provide their profit and loss statements, the balance sheet, financial notes and the directors’ report. While calculating the corporation tax, there is usually a difference between the profits that are based on the accounting books and the actual taxable profits. Therefore, in most cases, certain numbers that are added to the accounts-based profits are not considered while calculating profits for the corporation tax. The rules pertaining to corporation tax calculations are pretty complex, and many organisations hire professional accountants to file their corporation tax returns. Most corporate tax returns comprise details related to the company, the corporation tax due amount and the claimed capital allowances and losses, if any.
Dates and deadlines
It is mandatory for business owners to inform the HMRC, within three months of the establishment of their business, about the date they plan to prepare the company accounts. The HMRC then utilises this information to inform the company when it needs to file the corporation tax return. In most cases, the corporation tax includes a 12-month accounting period, which covers the 12 working months of a financial year. However, for some companies, especially new companies, the accounting period may be less than 12 months. In such cases, the corporation tax return is only to be filed for the respective number of months.
On the contrary, there might be some companies whose accounting period is more than 12 months. For these companies, the corporation tax return is to be filed in 2 parts: the first for the initial 12 months, and the second for the remaining number of months. However, one should keep in mind that it is compulsory for companies to file their returns within 12 months of the end of the corporation accounting period.
Apart from this, there is a separate deadline for paying the corporation tax dues, if any, which is usually nine months and a day after the completion of the corporation accounting period. A delay in paying both the corporation tax and the dues can incur significant financial penalties for companies.
For businesses making more than £1.5 million profits, the corporation tax is to be paid in instalments. From April 2017, it has been mandated that companies making more than £20 million taxable profit are to pay their corporation tax in the third, sixth, ninth and twelfth month of the accounting period that the profits relate to.
What to do if you file your company tax return incorrectly?
It is possible to correct errors if the corporation tax return has been filed incorrectly. However, such corrections have to be made within 12 months of the date the return has been filed. There is also a chance that the HMRC might levy a monetary penalty for the errors made. It has also been found that the HMRC, sometimes, conducts compliance checks to verify if the figures filed are correct or not.
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