CORPORATION TAX FOR LIMITED COMPANIES

What is corporation tax?

Corporation tax is a tax paid by limited companies, based on their profits. It is not payable by the self-employed, but where licensees set up their businesses as limited companies, their company is required to pay corporation tax on its profits.

Notifying HM Revenue and Customs

If your company has any taxable income or profits, you must notify HM Revenue and Customs that your company exists and is liable for tax. You must do this within 12 months of the end of your accounting period (the period for which your accounts are drawn up). Companies House inform HM Revenue and Customs when a company has been registered with them, but it is also your responsibility to notify them yourself.

When HM Revenue and Customs are informed of a new company, they create a computer record for the company and send out a form CT41G to the company’s registered address. This form should be completed and returned to HM Revenue and Customs.

Company records

Your company has to keep ‘sufficient’ records to enable it to make a correct and complete tax return. ‘Sufficient’ records include:

• Details of all receipts and expenses incurred in the course of your company’s activities.
• Details of all sales and purchases made in the course of trade.
• Any other supporting documentation.

For tax purposes, companies must keep their records for at least 6 years from the end of the accounting period.

When is corporation tax chargeable?

A company is generally chargeable for corporation tax on its total profits. Total profits are determined by adding together the profits from its activities and any chargeable gains. Chargeable gains are the profit made when an asset owned by the business is sold for more than the value it was bought for. (This only applies to assets which are not bought and sold as part of the normal trade of the company.)

Capital allowances can be claimed for certain assets and can be offset against your corporation tax liability. (See section, ‘Capital Allowances’, earlier in this chapter.)

Corporation tax is charged as a percentage of taxable profits: in 2007–08, the rates were:

20% on profits	£ 0–£ 300, 000 (small companies’ rate)
30% on profits	£ 1.5 million and above (main rate)

Marginal relief eases the transition for companies with profits falling between rates.

Self-assessment tax returns

HM Revenue and Customs will send the company a notice to deliver its Company Tax Return (form CT603), 3 to 7 weeks after the end of its accounting period. They will also send a Company Tax Return (form CT600) which you must complete and return to them by no later than the ‘statutory filing date’. (You can also use approved software or other authorised version of it.) The ‘statutory filing date’ is normally the later of:

• 12 months after the end of a company’s accounting period,

or

• 3 months after your company receives the notice to deliver.

There are penalties of up to £ 1, 000 for late filing of company tax returns.

Paying corporation tax

Corporation tax must be paid by the ‘normal due date’ which is 9 months and 1 day after the end of the company’s accounting period. Payment can be made electronically through the BACS or CHAPS systems, by GIRO or by cheque to the company’s usual Accounts Office (at Cumbernauld or Shipley). Payment should be sent together with a payment slip, which is issued with the notice to deliver a company tax return.