Education

What is corporate tax?

22 Sept 2021

In the UK, corporate or corporation tax is paid by all UK limited companies and other corporations and groups that make a profit in the UK. The amount each company pays depends on the annual turnover less their expenses. We explore corporation tax and how to pay it, in our latest blog here.

what is corporate tax

Based on annual profits a limited company or other corporation makes, they’ll legally have to pay tax to the UK Government. Companies are able to deduct some of their expenses from their profits such as travel and food so these aren’t included in their taxes. 

Businesses that have to pay annual corporation tax are:

  • An unincorporated association, club or community group that takes profit

  • An international company with a UK office

  • A limited company

Unlike sole traders who pay national insurance and income tax, limited companies and co-operatives pay corporation tax on their profits, less any expenses.

How much is corporation tax?

Since April 2016, corporation tax has been 19% of a company’s operating profit, meaning the total amount of tax paid is unique to every company. Unlike the tax contributions from individuals, which are taken every month directly from wages, corporation tax is paid every year in one lump sum.

In 2023, the UK Government is increasing corporate tax from 19% to 25% to help with recovery from COVID 19 pandemic. This will impact thousands of businesses and associations in the UK.

How to pay corporation tax

Payments for corporation tax are made directly from a business to HMRC online using a CT600 form and a unique tax code. The corporation tax will be calculated first by a professional accountant who will work out their total to help the business understand their profits less their usual expenses. 

Once an accountant has created the file, it’s then handed back to the business with a code for HMRC to pay it in full.

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When are corporate taxes due?

Corporation tax is due 9 months and 1 day from the financial year-end. As an example, if your accounting period ends on 31st March, then your corporation tax would be due no later than 1 January the following year. 

Understanding taxes and key dates can be confusing so it’s advisable you’re in touch with a qualified accountant who can offer you advice and guidance about your business tax.

Maybe you’re one of the thousands of individuals who are in the process of starting a business and want to register your limited company. We’ve created a handy guide to registering your company here.

If you’re concerned about making the corporation tax deadline or want to understand what funding options are available to help cover your tax, we’ve previously covered financing tax bills here.

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