What is Corporation Tax? A Beginner’s Guide

What is Corporation Tax? A Beginner's Guide

If you are a limited company owner, you need to know what is Corporation Tax. All limited companies need to pay this tax on the profit they earn from trading. Let’s see what is it, when do you need to pay it, how to register for it, what is the rate of Corporation Tax and what are the ways to pay Corporation tax. Let’s explore all!


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What is Corporation Tax?

This tax is payable on the profit earned by the limited companies in the UK. It is an income tax for companies but there is no personal allowance available. This means that whenever your business starts making a profit, you are liable to pay Corporation Tax on it.

You, as a limited company owner, need to pay this tax whenever you start making a profit from your business. It also includes the earnings from investment, selling assets than their actual cost (chargeable gains). These assets include equipment and machinery, land and property and shares of the company.


How to Register for Corporation Tax?

When you establish your business as a limited company, you first need to register for Corporation tax. You can register for it at the gov website. The deadline to register for this tax is within three months after undertaking your trading activities. Trading includes:

  • buying
  • selling
  • advertising
  • renting a property
  • employing someone

In case of registering late, you might have to pay penalties. So, you need to make it as your first priority after setting up your business as a limited company.

HMRC might require the following information after registering your business for Corporation Tax:

  • Your Company Name
  • The date you started doing business
  • Company name and registration number (for Companies House when you incorporate)
  • The company’s main address
  • Type of business
  • The date you’ll make your annual accounts up to
  • Basic details of the company’s directors


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Corporation Tax Rates

The standard corporation tax rate in the UK is 19% for 2021/22. This rate is applicable to all businesses. Earlier this rate was higher but due to various factors, but now the government has reduced this rate. This rate is payable as per your company’s accounting period for Corporation Tax. To know it, you can check the accounting period of your company by signing into the HMRC’s website.


When do you need to pay Corporation Tax?

The deadline for paying Corporation Tax differs from other types of taxes and is based on the accounting period of your company:

  • The Corporation tax is payable before filing the tax returns of your company
  • Its deadline is nine months and a day after the end of your accounting year if your taxable profit is £1.5m – like if your accounting period ends on 31st March, the deadline for your Corporation Tax will be 1st January

Bear in mind that your first need to prepare the company tax return to calculate how much Corporation Tax you are liable to pay. Although the deadline for filing a company tax return is a year after the end of the accounting period.


Ways to Pay Corporation Tax

Corporation tax is paid after knowing how much you need to pay and when you need to pay it. Different payment methods take different times for processing the tax. Here is the table that shows how much time it needs to process if you pay via these payment methods:


Payment method Time needed
Online and telephone banking Same day/next day
CHAPS Same day/next day
Bacs 3 working days
Direct Debit 3 working days
Online by debit or corporate credit card 3 working days
At your bank or building society  3 working days
Direct Debit (if you haven’t set one up before) 5 working days

Quick Sum Up

We hope after reading this post, you have understood what is Corporation Tax, when you need to pay this tax, what is the rate of Corporation Tax, how to register for it and the ways to pay the Corporation Tax. You need to remember that before paying any Corporation tax, you need to make sure that everything is organised to avoid paying extra or less tax. For this reason, you need to keep track of your expenses and claim the reliefs available.


If you’re facing difficulty with the Corporation tax, get help from our qualified accountants and tax experts as it is better to resolve the issue beforehand than paying a hefty fine later. Compare their Services & Fee, and Signup now in 3 minutes at Accounting Firms


Disclaimer: This blog provides basic information on Corporation Tax.

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