In this article we discuss one of the more commonly known taxes, corporation tax or ‘CT’ for short. We will briefly go over how it arises and some of the tax reliefs and tax reducers that are available to you.
What is Corporation Tax
In a nutshell if you generate profits from conducting business in the UK then you will pay tax on those profits.
To be liable for tax you must be either:
- A limited company
- Any incorporated club or society
- A foreign company with a UK branch or office.
Currently the rate of tax is set at 19% and is set to stay that way until at least the fiscal year beginning 1 April 2022.
Due to the fluctuating tax rates this can mean that sometimes profits will be liable to multiple tax rates as your accounting year end may not align with the fiscal year end.
For example, if your accounting year end was 1 January to 31 December 2020 then you would pay the following on your profits:
Profits 1 January to 31 March 2020 : Corporation tax rate for fiscal year 1 April 2019 to 31 March 2020
Profits 1 April to 31 December 2020 : Corporation tax rate for fiscal year 1 April 2020 to 31 March 2021
What are the obligations
Each year you are required to submit a tax return to HMRC and that is due 12 months after the end of the accounting period.
HOWEVER, payment of any tax liability is due 9 months after the end of the accounting period.
Makes no sense, right? Essentially if you make a loss then you can wait until month 12. But if you make a profit you will need to calculate tax payable and pay it within 9 months.
Here at Invicta we ensure all our accounts and tax are submitted within 9 months, rather than take risks and ‘hope’ things work out we find the proactive approach works far better and clients stay ahead of their obligations.
What reliefs are there?
With all types of tax there is always some relief that allows you to reduce your overall profits that are chargeable to corporation tax and below we discuss a few of the more commonly used ones:
This is the obvious one, if the company made a loss from the same trade the year before then it can offset it against any profits generated in the current year.
However, a quirk with trading losses is also that you can carry them backwards against a profit made in the 12 months prior. So, you may have paid tax last year on £10,000 profit. However, this year you made a £5,000 loss. You can carry it back and reduce last year’s profit to £5,000
Whenever you buy an asset that is for use in your business you can deduct some of the value of the item from your profits to reduce your total taxation. Often capital allowances can negate the effect of depreciation which gets added back and is not an allowable expense for corporation tax purposes.
Capital allowances can be complex and there are different rates applicable to different assets, always review HMRC’s guidance https://www.gov.uk/capital-allowances
How can Invicta help?
At Invicta we understand Corporation tax and have the software, knowledge and capabilities to track all reliefs and ultimately to make your taxation as efficient as possible.
We act on your behalf, removing the stress and worry associated with remittances and filing the forms on time with the relevant parties. We will add you to our dedicated HMRC agent portal and from there we deal with HMRC on your behalf.
Call Invicta Accounting on 01624 672358 or emails us at firstname.lastname@example.org to discuss your requirements.
All initial consultations are free and there is no obligation!
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