So, you have worked through the setup process for your brand-new business in the UK and now it’s time to think about your obligations for taxes. One of the most important things to consider is corporation tax, so it’s going to be worth your while to learn all about it and everything it entails. As there have been a host of reforms in the past few years, knowing exactly where you stand with corporation tax can be daunting, but we are here to help.
Registering for corporation tax
If you have recently started operating as a limited company, corporation tax is going to be a huge aspect that will need to be taken care of for your continued success and safety. It’s simple to get to grips with everything you need to complete and the HMRC makes the process of signing up, paying and keeping track of your records as easy as possible. You’ll be asked to provide:
- Your company name
- Your company registration number
- The start date of your business and the start date for the accounting period
- The type of business you are running
- Your company’s main address
- The names and home addresses of the directors of your business
There is a three-month deadline to register for corporation tax, which will begin on the day you start doing business. Your company director should be in charge of the company tax return, including filing and payments. If they aren’t confident in doing this, you can hire an accountant instead – although you should both be aware that the legal responsibility will remain with your director if any problems arise.
The corporation tax rate in the UK
The standard rate for this kind of tax in the UK is currently 19%, and this was set for 2 years for all business profits. It is going to increase to 25% in 2023, so this is worth keeping in mind. While it may seem like a big leap, the truth is that it’s still relatively low compared to previous years. In fact, it was set at 28% back in 2010.
The good news is that there are some tax reliefs that you may be able to take advantage of. There will be conditions and requirements that have to be met, but a good accountant can help and advise you on what your options are. The potential ones pertaining to corporation tax include:
- Expenses
- The Super Deduction
- R&D tax relief
- Capital allowances on property
- Employee share schemes
- The patent box
- Training
- Staff parties
- Losses
When is corporation tax due and how to pay it?
It’s important for businesses to know exactly when the deadline for filing for corporation tax is – but there’s a catch. This isn’t the same deadline as it is for other taxes. In fact, you will need to file it before your company tax return.
Furthermore, your corporation tax accounting period will determine the deadline you face. Be sure to do your research, so you don’t miss it (for reference, you will have nine months and one day from the end of your specific accounting period and the previous financial year). There will be penalties, and fees can get worse if things go unpaid for too long. The payment method you choose may have different processing times, and this could result in you making a late payment. For your reference:
- CHAPS – Same or the next day
- Online and telephone banking – Same or the next day
- Direct Debit – 3 working days (5 if not already set up)
- Bacs transfer – 3 working days
- From a bank or building society – 3 working days
Late filing penalties for corporation tax
There may be times when you overlook paying your corporation tax. If this happens, you may find yourself on the end of a late fine. These are:
- £100 for one day
- An additional £100 for 3 months
- HMRC determines 10% of your estimated liability for 6 months
- HMRC determines an additional 10% of your estimated liability for 12 months
Interest will be applied to the amount owed, and penalties or surcharges may be added also. Failure to pay can result in:
- The allocation of debt collection agencies and the issuing of court proceedings
- Removing debt amounts directly from your bank or building society
- The sale of your possessions
The HMRC may even shut down your business entirely or begin proceedings to bankrupt you if you don’t have a reasonable explanation for ongoing late payments – or if you try to avoid paying altogether. Things can and will escalate in the latter instance, and avoiding your taxes could land you in prison if things go too far. If you have any issues paying any bills to the HMRC, honesty is always going to be the best policy, as there may be concessions that can be made in extenuating circumstances.
There can also be issues if any errors are found within your company tax return. Accidents can happen and if you’re honest, you may get off without a fine, but these can go to as much as 30% of your tax bill. If HMRC identifies the mistake, you should expect anywhere between 15% and 30%.
It’s extremely important to understand that if an error is discovered that HMRC deems to be deliberate, you could be facing some serious consequences – especially if attempts were made to hide it. If you own up when notified, you’ll likely face 30% to 100% of your tax bill being fined, but it will be higher, at 50% to 100% if you don’t.
The good news is that changes can be made to your company tax return within 12 months of the filing deadline, so genuine accidents don’t have to be costly if they’re caught soon enough. They will need to be notarised and will show up in the final filing, so be transparent about your amendments wherever possible.
Workhy is your trusted assistant when setting up your UK company
Hiring a team like ours here at Workhy will give you the helping hand you need to ensure your company setup goes smoothly. Our highly skilled experts can offer additional services regarding taxation and financial issues too, so don’t hesitate to reach out for all your business needs.
