Corporation Tax - FAQs

What is Corporation Tax? 

Corporation tax was introduced in 1965 and is charged on the profits of companies resident in the UK. Companies pay corporation tax instead of income tax and capital gains tax, and profits include both income and capital gains. Unincorporated associations such as sports clubs also pay corporation tax rather than income tax on their profits.

What rates is it payable at? 

Corporation tax rates are applied to financial years beginning on 1st April and ending on the following 31st March. Financial years are described by the year at the beginning of the period thus the financial year 2009 is the period of twelve months beginning on 1st April 2009. The full rate of corporation tax for the financial year 2009 is 28%. For companies with profits below £300,000 there is a small companies rate of 21%. For companies with profits between £300,000 and £1,500,000 a marginal rate applies. Where there are associated companies the limits are divided by the number of companies to determine the tax rates.

Companies prepare financial statements for accounting periods which may be made up to any year end. Where the accounting periods straddle the financial years ended 31st March the profits are apportioned to calculate average corporation tax rates.

When does it arise?

Corporation tax is payable on company profits. Profits are calculated in accordance with generally accepted accounting principles. These standard measurements produce figures reflected in published results which are then adjusted to comply with the tax regulations and appear on corporation tax returns where the liability is computed. Provision for corporation tax payable is made within the company’s accounts and is indicated as a charge in the statutory profit and loss account and as a liability on the balance sheet. The charge arises for accounting periods which run from one accounting reference date to another which are usually at the beginning and end of a twelve month period, although this can be changed by the company’s directors.

When does it have to be paid? 

Corporation tax is generally payable 9 months and 1 day after the end of the company’s accounting period. There are provisions enabling companies with annual profits exceeding £1,500,000 to spread their payments by instalments, however.

Are there any exemptions or reliefs? 

In arriving at adjusted profits for corporation tax purposes there are various claims available including capital allowances, loss relief, group relief and consortium relief. A company may be associated with other companies (which essentially means under the same control) or be a holding company, a subsidiary company or part of a consortium or joint venture. The status of the company will establish whether a particular relief is available and claims must be made within strict time limits.

When should I be looking to get advice on corporation tax planning? 

If you do not employ an accountant please contact us. The rules for claiming capital allowances changed in April 2008 and if you intend to invest in eligible capital assets timing may be crucial as to when purchases should be made to maximise tax relief at the earliest moment. You may require assistance with completion of corporation tax returns and tax calculations and we are glad to help. You may be considering changes in company structure, a sale of assets, a sale of a business, share issues or disposals, or various other commercial transactions. These will all have an impact on a company’s corporation tax liability and we can advise you.
 
If you experience difficulties with HM Revenue & Customs [HMRC] enquiries or investigations we can assist in negotiating a settlement to minimise liabilities for corporation tax, interest, surcharges and penalties.
 
If you have a family company there may be issues regarding distribution of profits, investment plans, succession and continuity.

For advice on Corporation Tax, please speak to a member of our Tax and Wealth Preservation team.