General
UK Corporation tax is similar in structure to Irish Corporation Tax. UK Corporation Tax is paid by limited companies and some other entities, on their profits and gains. The rules applicable to Corporation Tax are similar to those that apply to Income Tax in relation to income and capital gains tax in relation to gains.
A company is subject to United Kingdom Corporation Tax if it is resident there. Being resident means that it is managed and controlled from there. A company can also be subject to Corporation Tax on the basis of being incorporated (i.e. formed) in England and Wales. Unlike in Ireland incorporation in England and Wales, Scotland or Northern Ireland automatically makes a company subject to UK Corporation Tax.
Where an non-UK resident company has a branch or place of business in the UK, then it is subject to UK Corporation Tax on the profits and gains of that branch.
The rate of Corporation Tax have been steadily reducing in the UK. From 1st April 2008 until 1st April 2015, a small companies rate of 20% was introduced on profits up to £300,000. On profits more than £1,500,000 the principal rate applied. For profits between £300,000 and £1,500,000 there was marginal relief which means the rate will be somewhere between 21% and 28%.
Since 1 April 2015 there has been a single corporation tax rate for all companies other than ring fenced companies. The rate is 19% for the year’s 1 April 2017, 2018 and 2019. It was intended to be 18% (later announced to be 17%0 for periods after 1 April 2020.
Ring fenced companies are those making profits from oil extraction and oil rights. They enjoy the small profit rate but are subject to a main rate of 30%
Capital gains tax applies to companies. In effect the capital gains is adjusted and forms part of the corporation tax liability
Returns and Payment
If a company is liable to pay Corporation Tax it must inform HM Revenue and Customs (HMRC). The company must make a self assessment tax return in which it calculates its tax liability accurately. Penalties and interest charges apply for failure to register or make returns.
There is an obligation to keep sufficient records of the outgoings and incomes of the business to make a complete and correct Corporation Tax return. This must include details of all receipts, expenses and purchases.
The requisite records will depend on the nature of the business. HMRC requires a company to keep its records for six years from the end of the accounting period. There are penalties for failure to keep records.
The company is responsible for calculating its Corporation Tax and making the return. Failure to do so can incur penalties. A Corporation Tax return can be made in at any time after the end of the accounting period. It must be made by the statutory filing date at the latest. This is the later of 12 months after the end of accounting year period or 3 months after the date the company receives a notice to deliver tax (Form CT600) from HMRC.
A company which has a corporation tax liability but has not received a notice must notify HMRC of its chargability to tax within 12 months of the end of the period
The return will need to be accompanied by accounts and computations together with supplemental details as necessary to justify the returns. Where figures have not yet been ascertained estimates should be used.
The return must be accompanied by certain additional supplementary returns which are relevant to the nature of the business.
These include the following:-
- loans to participators by close companies
- controlled foreign companies
- group and consortium form
- cross border royalties
- disclosure, tax avoidance scheme
The Corporation Tax form must be signed for and on behalf of the company.
Payment
The payment of Corporation Tax is due within 9 months of the last day of the accounting period. Interest will apply to late payment of Corporation Tax.Electronic payment is mandatory.Penalties apply if the tax is not paid on time.
Larger companies (i.e. ones with profits of more than £1,500,000) must pay their corporation tax electronically, by instalments. If tax is paid late, penalties and interest may arise. There are flat rate and fixed penalties for late filing. Interest is also charged on the due date to the date of payment.
For accounting periods of 12 months, the company usually pays its corporation tax in 4 quarterly instalments, 2 of which are due before the end of the accounting period. If the company has a 12 month accounting period, it must pay in 4 equal instalments due:
- 6 months and 13 days after the first day of the accounting period
- 3 months after the first instalment
- 3 months after the second instalment (14 days after the last day of the accounting period)
- 3 months and 14 days after the last day of the accounting period.
