Corporation Tax

What is Corporation Tax and who is subject to Corporation Tax requirements

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

If your company or organisation is based in the UK, you’ll have to pay Corporation Tax on all your taxable profits – wherever in the world those profits come from.

If your company isn’t based in the UK but operates in the UK – for example through an office or branch (known to HMRC as a ‘permanent establishment’) – you’ll only have to pay Corporation Tax on any taxable profits arising from your UK activities.

What you need to do for Corporation Tax and when you need to do it

If your company organisation is subject to Corporation Tax requirements you must:

  • tell HMRC that it’s liable for Corporation Tax
  • pay the right amount of Corporation Tax on time
  • file a Company Tax Return and supporting documents

There are different deadlines for each of these requirements. If you don’t meet those deadlines, your company or organisation may be charged interest and/or penalties.

Pay before you file

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 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 2008 to 31 March 2009, and your Corporation Tax accounting period is the same, you must:

  • pay your Corporation Tax for that period by 1 January 2010
  • file your Company Tax Return for that period by 1 April 2010

If your company or organisation’s taxable profits are over £1.5 million, you must pay Corporation Tax by instalments, all of which are due before the deadline to file your Company Tax Return.

Using an accountant or tax adviser

You can deal directly with HMRC or you can appoint someone to deal with HMRC on your behalf for your Corporation Tax affairs. This is known as appointing an agent.

What is an accounting period for Corporation Tax

Your company or organisation pays Corporation Tax on taxable profits for each Corporation Tax accounting period.

A Corporation Tax accounting period is different from similar terms used by other HMRC tax areas (such as VAT accounting periods) or other government agencies (such as Companies House accounting reference periods).

Your company or organisation’s Corporation Tax accounting period is normally 12 months long. This accounting period normally matches your company’s 12 month financial year. Your company’s financial year begins and ends with the dates covered by your company’s annual report and accounts (financial accounts) as submitted to Companies House. These accounts are sometimes called statutory accounts or audited accounts.

But in some instances your Corporation Tax accounting period won’t be the same as your company’s financial year if for example:

  • your accounts cover a period of more than 12 months – such as if your newly-formed company is preparing its first accounts to cover a period of more than 12 months, or your existing company changes its financial year end
  • your company has been dormant and once again starts to carry on business activity, your Corporation Tax accounting period may start on a different day from the start of your financial year

Accounting periods if your company accounts cover a period shorter or longer than 12 months

A Corporation Tax accounting period can be shorter than 12 months. For example, if your company accounts cover a period of less than 12 months, then the accounting period can be the same and you’ll simply file one Company Tax Return covering that period.

A Corporation Tax accounting period cannot be longer than 12 months. If your company accounts cover a period longer than 12 months and your company is active throughout, you must file two Company Tax Returns because you’ll have two Corporation Tax accounting periods. This is the case even though you only need to file one set of accounts at Companies House.

  • The first accounting period covers the first 12 months.
  • The second accounting period covers the rest of the time.

For example, if your company has its accounts prepared for 15 months from 1 January 2008 to 31 March 2009, your Corporation Tax accounting periods will be:

  • 1 January 2008 to 31 December 2008 (12 months)
  • 1 January 2009 to 31 March 2009 (3 months)

You’ll need to file two Company Tax Returns to cover these two Corporation Tax accounting periods.

Why you can’t just pay Corporation Tax on your pre-tax profits in your accounts

Your accountant will prepare your company’s accounts using recognised accounting standards. But the profit figures calculated in this way do not necessarily represent the appropriate amount of profit on which to pay Corporation Tax.

Also, your company’s accounts may cover a different period from your Corporation Tax accounting period (see the section above on accounting periods).

So you need to make those various calculations and adjustments to your accounting profit before tax to work out your taxable profit for Corporation Tax. You do this by completing and filing a Company Tax Return. A Company Tax Return includes a return form (CT600) and other supporting documents.