Corporation tax is paid on profit made by a corporation in last 12 months. Any registered limited company is obliged to file for corporation tax return which is known as CT600 on taxable income. To determine the true and fair amount which is subject to tax is complex and strenuous task.
Check if you are active or dormant:
An active company is one which is trading and doing business activities while if a registered company isn’t performing trading activities then this company is called dormant for corporation tax purpose.
What is active for Corporation Tax purposes:
Generally, your company or organization is considered to be active for Corporation Tax purposes when it is, for illustration:
-carrying on a business activity such as a trade or professional activity
-buying and selling goods with a view to making a profit or surplus
-receiving any other income
when to tell HMRC that your company is active:
A corporation must tell HMRC within 3 months of starting the tax accounting period if limited company is within the charge of Corporation Tax and is now active. This can be done via online reporting which is quick through government gateway account. You can also report by writing a letter with all the relevant details to process the request. So, as a starting point you need to inform the HMRC that you are an active organisation to get register for corporation tax. Alternatively, we at Businesswise Accountants can do inform HMRC on your behalf.
what is not active for HMRC for corporation tax:
There are many circumstances which make a company to be considered dormant for corporation tax purpose but generally a company is considered to be not active if it has not started the trading activities, although there maybe few pre-trading activities but still company isn’t considered as active for corporation tax purpose. If unsure then please contact Businesswise Accountants and we will help you accomplish that process.
What if you want to change accounting period:
You can minimize the accounting period as many times as you want and even can shorten the accounting period to prepared accounts to 1 day. But to lengthen the accounting period from 12 months to maximum 18 months but this can only be done once in 5 months. Please do also remember that changing in accounting period can be done through post or online portal for Companies house and that will change the accounting period for corporation tax as well.
Submitting your first tax return:
If you are new company then first set of company accounts are usually more than 12 months, for example if your company got registered on 20 th but reference date will be until end of that month. But remember for corporation tax there will be more than 1 corporation tax return to be submitted. CT600 form is used to file tax return while remember accounting profit and taxable profit can be different because some expenses such as annual depreciation are deducted in accounting profit and loss statement while they are added back in corporation tax filling. Careful consideration and pin point accuracy and attention to details is required to file CT600.
After careful treatment of all the expenses and allowances when you reach to What allowances you can claim:
Capital allowances are allowed on all the non-current assets purchased to be used in business, these assets are also called plant and machinery. In some cases you can deduce some part of total allowance while in most cases you can claim the full cost of that asset under the annual investment allowance. Other expenditures should be claimed under normal expenses some of which can be repairs, running bills and purchases.
Claiming Research and Development tax reliefs
If you are an innovative company, then good news is that you can claim allowance on research and development project expense. It can be claimed by a range of companies that seek to research or develop an advance in their field. It can even be claimed on unsuccessful projects.
What Marginal Relief is:
Marginal Relief provides a gradual increase in Corporation Tax rate between the small profits rate and the main rate.This applies where the profits of a company for an accounting period exceed a ‘lower limit’ but do not exceed an ‘upper limit’. Your company or organisation may be able to claim Marginal Relief and pay less Corporation Tax if its taxable profits are between:
- £300,000 (the lower limit) and £1.5 million (the upper limit)
taxable income then simply apply the corporation tax rate of 19% to that amount and you will reach the tax liability. Remember deadline to pay tax in 9 months and 1 day of accounting period ends but deadline for corporation tax return is 12 months after the accounting period ends. Important lesson is that penalties can be imposed by HMRC on missing either of deadlines.
How the payment can be made:
It is as vital to figure out which payment method suits your needs and help your payment get clear before deadline ends. It’s your duty as director of company to ensure that payments are made on time. If you are walking on a narrow time line then it is best to make payment through online and telephone banking or through CHAPS, while BACS, Direct Debit and bank payment takes atleast 3 working days to show in HMRC account. If using any of later methods then should allow more than 3 days and try to do payment well in advance of deadline.
Penalties for late filling:
You’ll have to pay penalties if you do not file your Company Tax Return by the deadline.
If your tax return is late 3 times in a row, the £100 penalties are increased to £500 each, while if you have plausible excuse then can still appeal against Tax determination which comes into force if your tax return is 6 months or more late but to avoid all that hassle and inconvenience you should hire a competent and qualified professional like Businesswise Accountants which can guide you on every step of this journey.