Everything You Need To Know
Corporation Tax Guide What Is Corporation Tax?
Put simply, corporation tax is a direct tax that a business must pay as soon as it starts making a profit. Corporation Tax gets paid at the corporation tax rate, which is a flat rate of 19%. Your Corporation Tax is both calculated and paid annually around your ‘corporation tax accounting period’, typically around the same time as your business’ financial year.
There are no bills for Corporation Tax, rather you must:
- Register for corporation tax within 3 months of your business starting to trade (dormant companies are not required to register)
- Upkeep your accounting records and prepare a Company Tax Return which will help you work out how much Corporation Tax to pay
- Pay your Corporation Tax by the deadline (nine months and one day following your accounting period from your previous financial year)
- File your Company Tax Return before the deadline (12 months after the end of the accounting period covered)
The amount of Corporation Tax a business is required to pay is calculated as a percentage of that business’ taxable profits. It is not enough to simply look at net profit, there are several tax-adjusted trading profits that must be calculated to pay Corporation Tax.
How Do You Pay Corporation Tax?
When it comes to paying your Corporation Tax, there are several options of methods for payment – but you must ensure you allow time for your payment to reach HMRC before the deadline. Remember that your Corporation Tax period is not always the same as your business’ financial period – if your period exceeds 12 months for financial statement purposes, two tax returns are required to be submitted.
|Payment Method||Time Taken|
|CHAPS||Same day / next day|
|Online Banking||Same day / next day|
|Telephone Banking||Same day / next day|
|Direct Debit||3 working days|
|1st Time Direct Debit||5 working days|
|Bacs||3 working days|
|Bank / Building Society||3 working days|
How Much Is Corporation Tax For A Limited Company?
Unlike sole trader businesses, when you set up a limited company business finances are kept separate to personal finances. As previously mentioned, all limited companies must pay Corporation Tax annually. Both small and large companies are required to pay a flat rate of 19%, but within the thresholds of company size, a system of ‘marginal reliefs’ exist.
You should be aware of the different Corporation Tax reliefs available for businesses, these can help to reduce the amount of Corporation Tax your business ends up paying.
6 Corporation Tax Reliefs:
- Creative Industry
- Research & Development
- The Patent Box
- Disincorporation Relief
- Marginal Relief
- Terminal, capital, property income losses and trading losses
For a more detailed explanation of each tax relief, please follow the link to HMRC’s guide.
Corporation Tax Statistics - Bubble Chart
The Group of 20 (G20) is a forum made up of nations that have the fastest growing economies in the world, making up roughly 75% of global trade and 85% of global gross domestic product.
Summits with each nation’s leaders are held annually and policies surrounding international financial stability are discussed. Established in 1999, the group’s primary mandate is to ‘prevent future international financial crises’ following a series of global debt crises through the nineties.
Our Corporation Tax bubble chart reveals each country in the G20’s corporate tax rate spanning a twelve year period, from 2007 to 2019. The corporation tax is shown against the backdrop of each country’s annual total gross domestic product and gross domestic product per capita. GDP change from year to year is also included and has been mapped out as a percentage.
Well structured corporation tax rates are crucial to boosting the overall economic performance of a country. As the graph shows, with a 19% Corporation Tax rate the UK has the second lowest rate to Switzerland, making its rate more competitive than the majority of the G20 countries.
Why Is Corporation Tax Reducing Year Upon Year?
The rate of Corporation Tax is decided and announced in the Chancellor’s Budget. In a Policy Paper published by HMRC in 2016, the government outlined its plans to reduce the Corporation Tax main rate to 17% for the Financial Year beginning 1st April 2020. The objective of this was to ensure a more competitive corporate tax system to provide the right conditions for business investment and growth.
At the time, HMRC stated that the economic impact of reducing Corporation Tax would ‘benefit over a million companies large and small’. By reducing Corporation Tax to 17%, the UK would surpass Switzerland’s rate of 18% and have the lowest tax rate in the G20.
A HM Treasury spokesperson stated that ‘the strength of our economy means we are expecting to collect more corporation tax in 2020 than forecast one year ago. Low corporation tax supports the economy by enabling companies to reinvest in their business, create jobs and increase wages’. As well as this, it is also argued that lowered corporation tax rates can increase total tax revenue by:
- Encouraging more multinationals to invest in the UK
- Enable firms to invest in their growth more
- Reducing the incentive for firms to tax avoid
However, this opinion is contested – others claim that while the proportion of Government revenues coming from corporation tax is falling, revenues from other taxes on businesses have increased. They argue that this has shifted the tax burden away from more profitable firms to businesses who employ more staff and own more UK property.
An Update On UK Corporation Tax 2020
Following the 2019 UK general election, which was held on 12th December 2019 and saw a Conservative Party majority which put Prime Minister Boris Johnson in power, the proposed cuts to Corporation Tax rates have been put on pause.
Undoubtedly disappointing startup and small business owners, the Prime Minister has shelved plans to reduce the rate in order to help fund other ‘national priorities’ and has issued a plea for UK businesses to show understanding of his priorities.
Finance Your Business' Corporation Tax Can I Take A Loan To Pay Corporation Tax?
If you are unable to pay corporation tax, you will be hit with penalty charges which will increase the overall amount owed, putting you in a worse financial situation. Charges begin from the day your payment is late, and interest accrues over time so its important to meet payment deadlines where you can. Continued late payment of corporation tax can result in HMRC taking further action, in the worst case petitioning for the compulsory closure of your business.
If you are worried about not being able to pay your corporation tax bill, don’t panic! From seeking external funding to setting up a payment plan, there are options for businesses in financial distress.
A corporation tax loan can be used to spread the cost of your business’ tax demands into more affordable monthly payments. A loan to pay corporation tax should be approached with caution as if your business’ finances are not in order, there is always a risk of getting into more debt. With this being said, SME Loans offer unsecured business loans for corporation tax, providing solutions for when HMRC’s corporation tax presents itself often at inconvenient times.
Our corporation tax loans allow borrowing between £1,000 and £500,000. As our loans are unsecured, there’s no need to worry about providing security through business collateral. Lenders charge a small percentage of interest on the money you borrow, calculated as a percentage of the overall corporation tax loan.
You can receive a loan to pay corporation tax in just 24 hours if accepted. Once the funds have been deposited in your account, you will then be required to pay back the money in scheduled monthly repayments over a period of 1 to 5 years.
Applying For A Corporation Tax Loan
Click on the application page. To ensure we match you with the best lender, we will ask for more information about your business. Please be ready to tell us:
- The name of your salon or barbershop
- The number of years you’ve been in business
- Your average monthly card sales
- The amount you are looking to borrow to cover your corporation tax obligations
You will then be directed to the next step, where you will be asked to disclose:
- Your title, first name and surname
- Your position in the business
- Your email and telephone number
Accept the terms and conditions and click ‘get my quote’. From here your application will be processed and reviewed by one of our approved business finance suppliers, who will help you find the correct lender for your corporation tax loan.
One of our account managers will be in touch by phone or email to discuss the terms of your loan or advance agreement.
After carefully reading through the terms of agreement, please sign the relevant documentation and return to the lender. You will then be able to access the funds in your account in just 24 hours.
HMRC's TTP Agreement Can I Arrange A Payment Plan With HMRC For Corporation Tax?
As mentioned previously, there are serious penalties for not paying your corporation tax on time. If you are unable to pay your tax bill or predict that you will only be able to pay it after the deadline, you need to contact HMRC as soon as you can. When it comes to missed or late payments, communication is key. The worst plan of action is ignoring the situation and delaying taking the action required to make your corporation tax payments.
In the event you need extra time to pay your corporation tax bill in full, you may be able to opt for HMRC’s payment plan referred to as a Time To Pay arrangement (TTP).
HMRC’s payment plan enables struggling businesses to pay back the tax they owe in instalments. The TTP arrangement is intended as a one-off payment plan to allow extra support, but continuous late payments will result in HMRC asking you to pay the outstanding amount in full.
In order to be eligible for the payment plan, it is imperative that you:
- Have no extra HMRC payment plans set up
- Have no other tax debts outstanding
- Owe less than £10,000
When setting up a payment plan, you will need to have to hand your Government Gateway User ID and password.
If you don’t think you’ll be able to make the corporation tax bill deadline, call the Business Payment Support Service on 0300 200 3835 prior to the deadline. For businesses that have already missed their payment deadline, call the Self Assessment Payment Helpline on 0300 200 3822.
It’s important to note that although the TTP agreement is there to provide vital support, you should only go ahead and apply if you are confident that your business will be able to upkeep the monthly repayments. If your business does not manage to do this, HMRC may take steps to dissolve your company.