What is Corporate tax? A guide for scale ups.

If the fundamental processes are running seamlessly, you’ll have more time to focus on the day-to-day joys of building your business. To help you achieve this we’ve created this complete guide for scale-ups(like yours) to take the complexity out of Corporate Tax.

What is the meaning of Corporation Tax?

Corporation Tax is essentially the tax companies are required to pay on the profits they make. Tax is paid on a business’ taxable income – this is the total revenue minus the costs of the essentials of running your business e.g. cost of goods, marketing and sales materials, operating costs etc. If your business has started to make a profit then you will be required to pay Corporation Tax – the current rate for 2020/21 is 19%. 

Who pays Corporation Tax?

If you are a sole trader then you will not need to pay Corporation Tax as you’ll instead pay Income Tax and National Insurance. If, however, you are a Limited Company then you will need to file your profits with HMRC and pay Corporation Tax.

Will I need to register with HMRC? 

You will need to register with HMRC to let them know that you are officially running a business and then provide them with information on your income and outgoings. This can be a daunting prospect but ensuring you are correctly registered with HMRC and updating them will help make the tax process easier when it comes around. You can register with HMRC here.

How do I file a tax return? 

You’ll need the following things to file your tax return: 

1. Details of your company’s taxable profit and annual accounts.
2. Your Companies House login details (You’ll have received these when you registered your limited company with Companies House).
3. Your unique user ID for HMRC’s online services. (You’ll have received these when you registered your business with HMRC).

From your business’ inception you must accurately record all your income and outgoings as this is what you will need to give Companies House and HMRC when you file your annual tax return. This can be tricky but it is an essential step because this is what will be used to determine the amount of Corporate Tax you owe. Whether you track these yourself or use an accountant, there are a number of handy accounting tools available to simplify the process.

It is important to note that there are different deadlines for filing and paying the tax. However, many business owners tend to complete step 1 and step 3 at the same time. 

What happens if no tax is due? 

Even if your company is loss-making, and no Corporation Tax is due, you must still file your tax return as evidence for HMRC to review. This is very important as you could be charged with a penalty if you don’t. No matter what your situation, it is best practice to keep HMRC informed to avoid any issues down the line. 

Are there ways I can reduce my Corporate Tax bill?

HMRC provides tax reliefs and allowances which could help reduce your tax bill. The reliefs are for specific circumstances and industries but it is worth reviewing them against your business. Here are a few common ones:   

How do I pay Corporation Tax?

There are a number of methods for paying your Corporation Tax – it’s up to you to decide. However, an important factor to consider when making your choice is the time needed to process the payment. If you pay your tax bill late then you may incur a late penalty fine. 

There’s a lot to consider when running a business and it’s easy to become quickly overwhelmed. Hopefully this guide has simplified the process for you somewhat but, if you need any further support just let us know. We’re always happy to help and support your scale-up on its journey to success.