What is corporation tax?

 

Corporation tax is a tax in the UK payable on the taxable profits of limited companies and other organisations, including:

  • Clubs
  • Societies
  • Associations
  • Other unincorporated bodies

If you require a solicitor to deal with an aspect of corporation tax, we will recommend a specialist tax solicitor to help you.

Taxable profits

For the purposes of calculating corporation tax, the following types of profits of a company are taxable:

  • Profits from taxable income. This includes trading profits and investment profits but excludes dividend income
  • Capital gains. This is known as 'chargeable gains' under the tax legislation

Companies based in the UK must pay corporation tax on all of the taxable profits of the company, regardless of where in the world the profits come from. If you have a company that operates in more than one country, including the UK, it is essential to get commercial tax advice from a taxation lawyer.

Rates of corporation tax

Corporation tax is currently levied at two different rates, depending on various factors. These two rates are known as:

  • The lower rate (the 'small profits' rate)
  • The upper rate (the 'full' rate or 'main' rate)

There is also a sliding scale between the lower and upper rates known as 'Marginal Relief'. In this way, the effective rate of corporation tax payable rises gradually from the lower rate to the higher rate dependent on the company’s taxable profit.

Companies have an obligation to inform HMRC that they are liable for corporation tax. They also have an obligation to file a Company Tax Return and supporting documents and to pay the correct amount of corporation tax owing on time.

A taxation lawyer can complete, on behalf of the company, a 'Corporation Tax Self-Assessment'. It is important to keep in mind the anomaly of corporation tax that the deadline to pay corporation tax is before the deadline to file Company Tax Returns.

Corporate tax planning

There are many reliefs from corporation tax available. A company must consider what their profits were in previous years and what the projected profits are for future years. The company will also need to consider if it is worth taking less relief now to get money from HMRC sooner, or whether they are able to wait for the money until following tax years.

A company must plan for future events such as large sales and purchases, so that they minimise the corporation tax paid and therefore maximise return for investors.

Most companies elect to keep a taxation lawyer on the books to ensure that such things are taken care of and that the company complies with the law without penalty.

Do you need to pay corporation tax but are unsure how? Contact Law can put you in touch with a specialist tax lawyer to help you file your tax return. Please call us on 0800 1777 162 or fill out the web-form above.

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