If you are a business operating in the UK, you will be aware that you will have various tax responsibilities. One of the taxes on UK businesses is known as corporation tax and it is important to be compliant if you are one of the organisations who pay corporation tax.

In this blog, we take a look at exactly who pays corporation tax, the amount that must be paid (this is subject to change) and the process for filing your corporation tax return.

Who pays corporation tax?

Only certain entities pay corporation tax on profits from trading and they are:

  • A limited company
  • Any foreign company with a UK branch
  • A club, co-operative or other unincorporated association, e.g. a community group or sports club

A limited company is defined as a business that has registered with Companies House as a legal entity. The business is detached from the owners and is responsible for its own actions, finances and liabilities. 

These can include both ‘for profit’ businesses, which have shares and shareholders and keep all profits made after tax, and ‘not for profit’ businesses, which have guarantors and the profits are invested back into the organisation.

How much corporation tax must be paid?

The rate at which the above organisations pay corporation tax is currently set at 19%. There was previously a plan for this to be reduced to 17% by April 2021. However, back in November 2019, Boris Johnson announced that the planned reduction would not go ahead, so as it stands the 19% rate looks set to continue for the time being.  

The amount of corporation tax payable is calculated based on the taxable profits of the entity and is declared on a corporation tax return. The return is due for filing 12 months after the entities’ year end.

How do corporation tax returns work?

The corporation tax return must be filed online with HMRC. When filing the return, it must be accompanied with the accounts of the company and corporation tax calculations.

One slight oddity is that, although the corporation tax return is due for filing 12 months after the year end, the tax payable is actually due within 9 months and 1 day of the year end. So, as an example, a company with a year-end date of the 31st December would need to file their return by the 31st December the following year but the tax payment would need to be made by the 1st October.

It’s also important to be aware of the repercussions of not filing a corporation tax return in line with the HMRC rules. If a return is filed late then the following penalties would apply:

Time after deadline Penalty
1 day £100
3 months Another £100
6 months HMRC will estimate your corporation tax bill and add a penalty of 10% of the unpaid tax
12 months Another 10% of any unpaid tax

Another point to note is that if the return is filed late 3 times in a row, the £100 penalties are increased to £500 each.

You would also be charged interest on the late payment of any corporation tax due.

When you are making the payment of the company corporation tax bill, this now has to be done electronically, you can no longer make payment by cheque. The above is a brief summary of who pays corporation tax and when it should be declared and paid to HM Revenue and Customs. If you would like any additional information on this, please get in touch