Corporation Tax

Corporation Tax is a tax on the taxable profits of limited companies and some organisations including clubs, societies, associations, co-operatives, charities and other unincorporated bodies.

Taxable profits for Corporation Tax include:

  • profits from taxable income such as trading profits and investment profits (except dividend income which is taxed differently)
  • capital gains – known as ‘chargeable gains’ for Corporation Tax purposes

Like Income Tax, a Corporation Tax Return or Corporation Tax Self-Assessment, has to be sent to HMRC. The organisations’ managers/directors have the responsibility to work out how much corporation tax the organization must pay for each Accounting period.

To minimize your corporation tax liability and to maximize the effective use of legitimate allowances and reliefs, we would strongly advise using the services of a qualified professional like Baillie Accountants.

We’ll make sure that you do not pay any more tax than you need to and that your tax return will be submitted in a timely manner to avoid penalties and interest charges.

If you have any questions about corporation tax, please contact one of the team on 01952 727177 or 0121 236 7585.

There are currently two rates of Corporation Tax, depending on the company or organisation’s taxable profits:

  • the lower rate – known as the ‘small profits’ rate at 20% on profits from £0-£300,000
  • the upper rate – known as the ‘full’ rate or ‘main’ rate 23% on profits from £1,500,001 and over.

There is also a sliding scale between the lower and upper rates known as ‘Marginal Relief’. This means if your company or organisation’s profits fall between certain limits, you pay the full rate of Corporation Tax but it is reduced by Marginal Relief.

Click here to download our handy tax tables which give summary details of rates and Allowances

Click here to download our guide to tax allowances

Unlike other taxes such as Income Tax or VAT – where in most cases the filing and payment deadlines are identical – this is not the case with Corporation Tax. The deadline to pay your Corporation Tax is before the deadline to file your Company Tax Return. Generally you must:

  • pay by 9 months and one day after the end of your company or organisation’s Corporation Tax accounting period
  • file by 12 months after the end of your company or organisation’s Corporation Tax accounting period

For example, if your company or organisation’s financial year runs from 1 April 2011 to 31 March 2012, and your Corporation Tax accounting period is the same, you must:

  • pay your Corporation Tax for that period by 1 January 2013
  • file your Company Tax Return for that period by 31 March 2013

Automatic flat-rate penalties for late Company Tax Returns

If you file your Company Tax Return late, your company or organisation will be charged a flat-rate penalty of £100. HMRC will charge a further £100 penalty if you file your return more than three months late.

If your Company Tax Return is late for three or more accounting periods in a row, the initial flat-rate penalty increases to £500 with a further £500 charged if you file your return more than three months late.

Additional penalties for very late Company Tax Returns

If you don’t file your Company Tax Return by the later of:

  • 18 months from the end of your Corporation Tax accounting period
  • your filing deadline

HMRC may charge your company or organisation further penalties from that date.

These penalties will be on top of the flat-rate penalty or penalties you’ve already been charged. These additional penalties are known as tax-related penalties because they are related to the amount of Corporation Tax your company or organisation owes. They are calculated as follows:

  • where a return is filed between 18 months and 24 months after the end of your company’s accounting period: 10 per cent of any unpaid Corporation Tax
  • where a return is still not filed 24 months after the end of your accounting period: a further 10 per cent of any unpaid Corporation Tax

Here, the amount of unpaid Corporation Tax is the amount due that you didn’t pay by the date your company first became liable to a tax-related penalty.

If you pay your Corporation Tax late, don’t pay enough or don’t pay at all, HMRC will charge your company or organisation interest. This interest is known to HMRC as ‘late payment interest’.

Late payment interest is charged at 3% and repayment at 0.5%.