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Understanding Corporation Tax: A Clear Guide



Who Has to Pay Corporation Tax?

Corporation Tax is owed by all limited firms, and it is calculated according to the business's financial year. There are few exceptions, such as when beginning a new business and changing the accounting years end date.

Tax is due on whatever money a firm makes from investments and from selling capital assets for more than they cost – known as chargeable gains – in addition to any profits it makes during its financial year. If the company is situated in the UK, tax is paid on both domestic and international profits, or on domestic profits if the headquarters are in another country.

How to Calculate How Much Corporation Tax to Pay?

The corporation tax rate is fixed at 20% on all profits. Simply multiply your business profits for the tax year by 20% to get your Corporation Tax liability. If your profits were £25,000 after permitted expenses and charges, your Corporation Tax liability would be £5,000, which you would pay to HMRC.

If your fiscal year ends other than April, you must pay Corporation Tax for the period up to the date the Corporation Tax rate was altered, and then compute Corporation Tax at the new, lower rate for the rest of the fiscal year.

How to Pay Corporation Tax?

Make sure you register your company with HMRC for Corporation Tax. Unless your firm is defunct, you must do this within three months of forming a company with Companies House. You must notify HMRC by registering for Corporation Tax if you restart a firm.

You'll be able to sign in and report your Corporation Tax on your Company Annual Return once you've enrolled. Corporation Tax deadlines will be notified by HMRC to the registered office of your company.

Corporation tax must be paid within nine months of the fiscal year's conclusion. If your company makes more than £1.5 million, you will be required to pay in instalments. Within 12 months of your year-end, you must also file a Corporation Tax Return with HMRC.