Corporation tax

Most companies in the UK have tax liabilities - but many also need to pay Corporation Tax. All business which are liable should understand how to keep records and determine what they owe, along with any other requirements.

Which businesses need to pay corporation tax?

The following types of organisations are liable for corporation tax:

  • limited companies
  • foreign companies with a UK branch or office
  • unincorporated associations (eg non profit co-operatives and sports clubs)

Sole traders, partnerships and LLPs are not required to pay corporation tax.

What are the rates?

In the tax year 2018-2019, the standardised corporation tax rate is 19%. This applies to all business which are liable to pay corporation tax (apart from unit trusts and open-ended investment companies which must pay 20%).

In the previous tax year, the standardised rate sat at 20%. The rate is due to be reduced to 17% for the year starting 1 April 2020.

Different rates are applicable to ring fence companies (which make profits from oil extraction or oil rights in the UK or UK continental shelf) - see Gov.uk.

How does a company register to pay corporation tax?

Once a company has registered with Companies House and commenced business (which includes buying, selling, advertising, renting a property and employing people), it must register for corporation tax within three months. Late registration may incur a penalty.

Companies can register for corporation tax online using their Unique Taxpayer Reference (UTR). They will also need the company registration number, the date on which they commenced business and the date to which their annual accounts are made up.

What records must be kept?

Companies liable for corporation tax must ensure that they keep adequate company, financial and accounting records, including:

  • details of directors, shareholders and company secretaries
  • register of 'people with significant control' (PSC)
  • records of all money received and spent by the company

Records must be kept for at least six years from the end of the last company financial year to which they relate. The Corporation Tax department of HMRC must be notified if any of these records are lost, stolen or destroyed.

For further information about records which must be kept, see Gov.uk.

What profits must corporation tax be paid on?

Companies must pay corporation tax on any profits including:

  • trading profits (ie money made from the core business)
  • investment or rental income
  • capital gains (ie selling assets at a profit - including land, property, equipment and machinery)

Trading losses can be offset against profits but capital losses can only be offset against capital gains.

What are the deadlines?

The deadline for payment of corporation tax in respect of taxable profits of up to £1.5 million is nine months and one day after the end of company's accounting period.

If taxable profits exceed £1.5 million, corporation tax must be paid in installments.

If there are no profits, a company tax return is still required - and a 'nil to pay' form must be submitted to HMRC.

What are the reliefs and allowances?

Costs of running a business can be deducted from profits when preparing company accounts. However, some expenses are not allowed for purposes of corporation tax (eg entertaining clients).

Capital allowances (ie assets which are purchased for use in business) can be deducted from profits. These include equipment, machinery and business vehicles.

Other reliefs include:

  • Research and Development (for companies that work on innovative projects in science and technology).
  • Profits from patented inventions (Patent Box) (for companies that make a profit from patented inventions).
  • Creative industry reliefs (for companies that make a profit from theatre, film, television, animation or video games).
  • Disincorporation (if a company is being closed and turning into a sole tradership or partnership).
  • Relief for companies that make capital or trading losses.
  • Marginal relief (for companies with profits between £300,000 and £1.5 million).

For further information on allowances and reliefs, see Gov.uk.