Corporation tax in the UK is a tax levied on the profits of limited companies, foreign companies with a UK branch or office, and some other organisations like clubs and associations. It is not applied to sole traders or partnerships; they are taxed under different rules.

The first step in calculating UK corporation tax is to determine the taxable profits of your company. This involves taking your company’s revenue and subtracting allowable expenses and deductions. Common deductions include operating costs, employee salaries, and interest on loans.

The UK corporation tax rate can vary depending on the level of profits earned. From 1st April 2023 these rates are;

• Main Rate: The standard rate applied to profits over £250,000 is currently 25%.
• Small Profits Rate: A reduced rate applies to companies with profits below £50,000, this is currently 19%.
• Companies whose profits are between £50,000 and £250,000 may be able to claim Marginal Relief, Marginal Relief provides a gradual increase in the corporation tax rate between the Small Profits Rate and the Main Rate.

Corporation tax returns must be filed within 12 months after the end of the financial period it covers, missing this deadline will result in an automatic £100 penalty being levied, additional penalties may be incurred if the return is more than three months late.

Any tax due will be payable nine months and one day after the end of the tax return period. Interest may be added if tax is paid late.

There are various tax credits and reliefs that can reduce your corporation tax liability. Examples include Research and Development (R&D) tax credits, capital allowances (check out our blog post from 5th May for more information on capital allowances) , and tax relief for creative industries.

If your company makes a loss in a particular financial year, it may be possible to carry that loss forward to offset against future profits, reducing your future corporation tax liability. In some circumstances losses can also be carried back against previous years profits. There are also provisions for group relief, which allows losses to be offset against profits in other group companies.

For businesses with international operations, the UK has rules for double taxation relief and transfer pricing to ensure that profits are appropriately taxed.

Ensuring compliance with UK corporation tax rules is essential. This includes maintaining accurate financial records, filing annual tax returns, and paying the tax owed on time. Non-compliance can result in penalties.

It’s important to note that tax laws and rates may change, and it’s advisable to consult with a qualified accountant or tax advisor to ensure that your company is complying with the most up-to-date regulations and making the most of available tax incentives. They can also help you with tax planning strategies to optimise your tax position while staying within the bounds of the law.

For more information or specialised advise for your company contact us at [email protected]