As legal entities, limited companies are subject to strict taxation requirements. These requirements can be very complex; whilst it’s possible to file the appropriate returns yourself you may wish to hire a professional accountant to take on the administrative burden.
Limited companies pay corporation tax. The onus is on the directors to calculate the amount of tax that’s owed, in a process called corporation tax self-assessment. This is not the same as the self-assessment tax return, which must be submitted by sole traders, partnerships and those registered as self-employed. If you are liable to pay corporation tax, you must let HMRC know by filling out form CT41G (PDF, 45kb).
Calculating corporation tax
Corporation tax is applied to taxable profits, which include all revenues except those from a few specific sources (check with an accountant for more information). Once you’ve reached a figure, you can apply all tax breaks, exemptions, relief and other sums that are not subject to tax for whatever reason. Corporation tax is then applied at the following rates, correct as of April 1, 2011:
- 20 percent for firms with taxable profits of less than £300,000
- Between 20 percent and 27 percent for firms with taxable profits of between £300,000 and £1,500,000. The amount paid depends on a fractional calculation
- 27 percent for firms with taxable profits of £1,500,000 or more
Tax credits and tax already paid can then be deducted once you have arrived at an amount that is owed to HMRC.
Filing your return and paying tax
Deadlines for filing your corporation tax return and paying your tax are not based on the standard tax year. Accounting periods vary for limited companies and are linked financial accounts you will previously have submitted to Companies House.
- Payment must be received by HMRC no later than nine months after the end of your company’s accounting year
- Tax returns must be received by HMRC no later than 12 months after the end of your company’s accounting year
- Financial penalties are often charged for missing deadlines
- Tax owed for companies with profits above £1,500,000 is payable in instalments – the first within six months and 14 days of the end of the previous accounting period.
- Corporation tax returns must be filed online – no postal returns are accepted
Employing an accountant
Due to the complexity of paying corporation tax, limited companies are advised to hire an accountant to reduce the administrative burden and ensure a compliant and accurate return is filed. Alternatively you may wish to hire a tax advisor who can offer you targeted advice for your business. The Chartered Institute of Taxation (CIT) can help you find a qualified tax advisor in your area, or alternatively the Institute of Chartered Accountants in England and Wales (ICAEW) will help you find an accountant. Scottish entrepreneurs should contact the Institute of Chartered Accountants of Scotland (ICAS).