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If you run a business in the UK then you might need to submit a Company Tax Return and pay Corporation Tax on the profits that you make. Tax can be a tricky subject, so our article goes into more detail about how tax works for limited companies.

What is Corporation Tax?

Corporation Tax is paid by some UK businesses and organisations on the profits that they make. Profit is the amount of income left over once the business has paid all of its expenses.
 

Who needs to pay Corporation Tax?

Corporation Tax is normally payable by all limited companies incorporated in the UK. There are other organisations which might also need to pay it, even though they’re not incorporated (set up as a limited company):

  • Members’ clubs, societies, and associations
  • Trade associations
  • Housing associations
  • Groups of individuals carrying out a business (such as co-operatives)

Other types of businesses, such as sole traders and partnerships, won’t pay Corporation Tax. Instead, you’ll need to submit a Self Assessment tax return, and pay Income Tax on the profits that you make.
 

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What type of tax return do I need for Corporation Tax?

You’ll need to submit a Company Tax Return in order to pay Corporation Tax if you operate a limited company. HMRC will use the information you submit to work out how much Corporation Tax you owe.

Do I still need to submit a tax return if my company made a loss?

Yes, you should still submit your Company Tax Return, even if you don’t have any tax to pay this year. This is because HMRC won’t know what you owe until they receive your tax return, so you might simply get a fine if you don’t tell them!

Will I need to send a Company Tax Return for a dormant company?

You don’t need to submit a Company Tax Return for a dormant company.

The definition of a dormant company for Corporation Tax purposes is a bit different to the one used by Companies House. As long as your company isn’t actively trading or liable for Corporation Tax, then it’s dormant.

You must tell HMRC that your company is dormant!

 
Otherwise, they’ll expect to receive a Company Tax Return from you, and you might receive a penalty for not submitting one.

How do I register for Corporation Tax?

Most companies register for Corporation Tax when they register the business at Companies House (known as incorporation), but you can do it at a later date as long as you register within 3 months of starting to trade.

Trading doesn’t just mean making sales, and can actually refer to any sort of business activity – even placing an advert!

You’ll need to sign into your business tax account to register for Corporation Tax, using your Government Gateway ID to sign in. You’ll also need your company’s Unique Taxpayer Reference (UTR).

What should I include in my Company Tax Return?

A complete Company Tax Return consists of several key pieces of information, including:

Should I include my overseas profits on my CT600 tax return form?

If the company is based in the UK, it will be liable for Corporation Tax on all of the profits that it makes, wherever they originate. If the company is based overseas but trades through a branch or office in the UK, only the taxable profits in the UK will be liable for UK tax.

If your UK-based company has to pay tax elsewhere, there may be a double-taxation agreement in place which means the tax you pay overseas can be deducted from your UK Corporation Tax liability.

How do I submit my CT600 and Company Tax Return?

You can complete a CT600 form online, and submit it along with your accounts and other details as part of your Company Tax Return.

You don’t have to do it yourself, and can ask an accountant to do it for you instead, but it’s still your responsibility to make sure it’s submitted on time, and that the bill is paid!

When do I need to submit my Company Tax Return?

The deadline for submitting your Company Tax Return is 12 months following the end of the financial accounting period that it relates to. You might sometimes hear this referred to as the statutory filing date.

What’s the deadline for paying Corporation Tax?

The deadline for paying your Corporation Tax is nine months and a day following the end of the accounting period that it relates to. Not a typo – the deadline for paying the bill really is earlier than the deadline for submitting the tax return!

How do I pay my company’s Corporation Tax bill?

You can pay your tax bill online, through online banking, or over the phone. You can normally only pay through a branch of your bank if you have a paying-in slip from HMRC.

Don’t forget to quote the Corporation Tax payment reference which relates to the accounting period you’re paying for.

 
You can find this on the ‘notice to deliver your tax return’, any reminders from HMRC, or by signing into your company’s HMRC online account. Choose ‘view Corporation Tax statement’, ‘accounting periods’, then select the correct period. The reference number you need is 17 characters long, for example 1234567890A01234B. It is not the same as your company registration number!

Is a Company Tax Return the same as submitting accounts?

No, the company tax return and the company accounts are two separate things. The company tax return goes to HMRC, who will then calculate and collect the Corporation Tax the company owes.

Your company accounts go to Companies House, who file them with your record for public viewing.

How much is the rate of Corporation Tax?

Limited companies pay Corporation Tax depending on which rate they’re eligible for:
 

Companies reporting profits of… Pay Corporation Tax at a rate of…
Small profit rate Less than £50,000 19%
Main profit rate More than £250,000 25%

 
HMRC say that the thresholds are proportional to the number of associated companies that your company has. So, if your company has a further 3 other associated companies, that makes a total of 4.

That means that the limits are divided by 4, so the threshold for the small profit rate becomes £12,500 and the limit for the main profit rate becomes £62,500.

Marginal Relief will adjust the rate of Corporation Tax for companies who report profits between these thresholds.

Marginal Relief for Corporation Tax

You might be able to claim Marginal Relief if your company’s annual taxable profits from 1st April 2023 are between £50,000 and £250,000. You won’t be able to claim Marginal Relief for:

  • A non-UK resident company
  • A close investment holding company
  • A company whose profits (including distributions from unrelated, un-associated companies) are more than £250,000

How do I work out Marginal Relief for Corporation Tax?

The easiest way to work out how much Marginal Relief is available to you is probably with HMRC’s online calculator, but our step-by-step guide below shows how the calculation works on a basic level. In our example the limited company:

  • Has taxable profits of £70,000
  • Didn’t receive any distributions (such as dividends from an investment that the company made)
  • Doesn’t have any associated companies
  • Is submitting a tax return which covers a full financial year

 

Step 1: Calculate the difference between the company’s profits and the upper limit

  • Companies start paying the main profit rate on profits at the £250,000 upper limit
  • The company in our example makes a taxable profit of £70,000
  • £250,000 minus £70,000 leaves £180,000

Step 2: Work out how much Marginal Relief is available

The Marginal Relief fraction is the difference between the main profit rate (25%) and the small profit rate (19%). It’s used to provide a gradual increase in the rate of Corporation Tax between the two. You might see it expressed as a fraction (3/200) or as a decimal (0.015).

  • The marginal relief fraction is equivalent to 0.015
  • In our example the difference between the company’s profit and the upper limit is £180,000
  • £180,000 multiplied by 0.015 is £2,700 of Marginal Relief

Step 3: Calculate Corporation Tax before Marginal Relief

This is what the company would pay in Corporation Tax without any Marginal Relief.

  • The company in our example makes a taxable profit of £70,000
  • The main profit rate is 25%
  • £70,000 multiplied by 25% is £17,500

Step 4: Deduct the Marginal Relief

Subtract the Marginal Relief that’s available to work out the company’s bill for Corporation Tax.

  • The company’s tax bill without Marginal Relief is £17,500
  • The amount of Marginal Relief available is £2,700
  • £17,500 minus £2,700 is £14,800

 

In this case, the effective rate of Corporation Tax is 21.14%, illustrating how there’s a gradual increase in the rate between 19% and 25%.

How can I reduce my Corporation Tax bill?

The good news is that there are several ways you can reduce your Corporation Tax bill, and they’re absolutely allowed!

Pay yourself a salary

Salaries are an allowable expense, which means you can offset them against your profits in order to reduce your Corporation Tax bill. It’s why paying yourself a small salary can be a tax efficient way to take money out of the business.

Pension payments that your company makes on behalf of directors are also deductible, whilst helping you save for the future.

Claim all of your allowable expenses

Keeping excellent financial records helps business owners stay on top of what’s happening in their business, and use this information to make more effective decisions, but it’s also useful for making sure that you record every business expense, ready to claim tax relief.

Claim Capital Allowances

If you buy assets for your business, such as machinery or other types of long-term assets, you might be able to reduce your tax bill by claiming Capital Allowances.

R&D tax relief

Limited companies can sometimes claim tax relief against the cost of research and development work, as long as it meets the strict R&D tax relief criteria.

 
Tax can be a complicated subject! Learn more about our online accounting services for limited companies. Call the team on 020 3355 4047, and get an instant online quote.

About The Author

Elizabeth Hughes

A content writer specialising in business, finance, software, and beyond. I'm a wordsmith with a penchant for puns and making complex subjects accessible. Learn more about Elizabeth.

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