When you’re running a limited company, you have various responsibilities and obligations, one of which is Corporation Tax. You’ll be required to pay Corporation Tax within the deadline, otherwise, you could endure a fine from HMRC. But knowing how much Corporation Tax you’ll need to pay and how to pay is important. This article will give you the rundown on limited company Corporation Tax, so you’re prepared financially and mentally to carry out your responsibilities.
What is Corporation Tax?
UK-based businesses are required to pay Corporation Tax on their profits from any UK earnings or earnings from abroad. You’re required to pay Corporation Tax if you’re a limited company, a foreign company but with a UK-based office or branch, or a club or unincorporated association such as a sports centre or community group. Corporation Tax bills aren’t sent to you to pay. There are steps that you’re required to take to ensure you’re up-to-date on your payments, which we cover later on in this article.
Corporation tax must be paid on:
- Trading profits - any profits your limited company receives from just carrying out their service or ‘doing business’.
- Investment income profits
- Any chargeable gains from selling business assets for more than their cost.
It was originally introduced after the second world war as a way of reducing companies' after-tax profits, which would also then reduce the income from profits to company shareholders, in the hopes that UK businesses would retain their profits for investment which was important after WW2.
How much is Corporation Tax for a limited company in 2023/24?
In the 2023 Spring Statement, it was announced that there would be some changes that may affect some limited companies. The Corporation Tax rate will be 19-25% for the 2023/24 tax year, but not for all limited companies. We’ve provided a breakdown:
- From the 1st of April 2023 businesses classed as ‘main rate’ will pay 25% in Corporation Tax.
- Companies with taxable profits below £50,000 will continue to pay 19%
- If your business profits between £50,000 and £250,000, you’ll instead be able to claim a marginal relief rate, which reduces your rate below the 25% bracket.
- For those with more than one limited company, your companies are known as associates. The thresholds of £50,000 and £250,000 are divided by the number of associated companies you have. For example, if you have two associated companies, the threshold of £50,000 and £250,000 will fall to £25,000 and £125,000 respectively. Meaning that you’ll pay 19% on profits below £25,000 and 25% on profits above £125,000 in Corporation tax for either of your two companies.
It’s estimated that the higher rate will only affect 10% of UK businesses. Most businesses fall into the marginal relief threshold. You can use the marginal relief calculator on the gov.uk website to work out what your marginal relief will be. Alternatively, read our straightforward guide on how to pay tax, or take a look at the 2022/2023 UK tax rates, thresholds, and allowances for some more in-depth insights.
Do you pay Corporation Tax on a limited company?
Limited Companies based in the UK with offices or branches are required to pay Corporation tax on their trading profits, investment income profits, or chargeable gains from selling assets.
When you set up your limited company you’ll need to register for Corporation tax.
How to register for corporation tax
Usually, when you register your limited company with Companies House you’ll register for Corporation Tax and PAYE as an employer at the same time. If this isn’t the case, you can register separately online on the Gov.uk website. If you’re registering via post, through an agent, or through a software you’ll also need to register using this service.
You MUST register for Corporation Tax within three months of starting your limited company.
To register for Corporation Tax we’ve broken the process down into easy-to-follow steps:
- As you should have already registered your business with Companies House, you’ve likely already created a business tax account. Sign into your account to get started. You’ll need your Government Gateway ID and the password associated with this account to access it. You’ll also be asked for your UTR number.
- You’ll need to tell HMRC your company's registration number, the first date that you started to do business, and the date your annual accounts are made up of.
- HMRC will then inform you of your Corporation Tax deadline. You’re then required to file a Corporation Tax Return by the deadline. This is required even if you have no Corporation Tax to pay or if you’ve made a loss.
How to pay corporation tax
The deadline to pay your Corporation Tax will depend on taxable profits. For taxable profits of up to £1.5 million, you’re required to pay your Corporation Tax nine months and one day after your accounting period ends. For taxable profits of over £1.5 million, your Corporation Tax must be paid through instalments. You can check the rules for £1.5 million to £20 million on the government website and for over £20 million.
Note: you cannot pay your Corporation Tax by post.
Your options for how you’d like to pay depend on how quickly you want yours completed. For same day or next day, you can pay:
- Online or through telephone banking using faster payments or CHAPS
Within three working days:
- Online or through telephone banking by Bacs
- Via direct debit if you’ve previously set one up
- Online using a debit or corporate credit card
- Directly at your bank or building society
Within five working days:
- Via direct debit if you haven’t set one up before
It’s your responsibility to make sure you plan in advance to pay your Corporation Tax bill so that it pays HMRC before any weekends and bank holidays.
What if you can’t pay your Corporation tax bill?
If you’re due to pay your Corporation Tax bill but cannot pay it, your first point of call should be to contact HMRC immediately. HMRC may suggest setting up a payment plan or ‘Time to Pay’ arrangement to spread the cost of your tax bill. This is usually only considered if HMRC believes that the instalments would be paid and you’re financially able to keep up with them, if not, you’ll be asked to pay in full.
Corporation Tax Allowances
Claiming allowable expenses is a great way to reduce your Corporation tax bill.
The most known form of allowance for both sole traders and limited companies are business costs that are required for the running and production of the business. Some examples of this are:
- Office Supplies
- Business Insurance
- Accounting and financial costs
- Travel and accommodation expenses for business travel
- And much more.
You can claim for anything that is solely for business use and not for personal use, however, if you’re unsure, you can contact an accountant to get clarification if a charge can be claimed as an expense.
Corporation Tax Relief
Just like Corporation Tax allowances, there are particular Corporation Tax Reliefs that can also be claimed that are specific for limited companies or those having to pay Corporation Tax:
- Research & development costs
- Profit from patents
- Production of some creative media (e.g. TV, films, theatrical productions, and video games)
- Business losses
Making the most of any Corporation Tax Relief can be beneficial as it means you can save on the amount of Corporation Tax you have to pay on your next bill, so you can invest more money into the growth of your business.
Corporation Tax Advice
For any advice on Corporation Tax, what you need to pay, or clarification on allowable expenses or tax relief, get in touch with our Crunch expert Chartered Certified Accountants. You can also get in touch with HMRC at 0300 200 3410.