What is Corporation Tax?
Definition of Corporation Tax
Corporation Tax is a tax that limited companies and some other organisations like clubs and societies must pay to HMRC on their profits. The obligation to pay this tax is often known as ‘Corporation Tax liability’.
Who pays Corporation Tax?
Companies must pay Corporation Tax on their profits if the business is:
- a limited company
- a foreign company with a UK branch or office
- a club, co-operative or other unincorporated association (for example, a community group or sports club)
How to pay Corporation Tax
There are several things a company must do to calculate and pay its Corporation Tax:
1. Register for Corporation Tax
Companies should register for Corporation Tax within three months of starting to trade. Many businesses register at the same time as registering online with Companies House, but those that need to register separately (for example, if the business was registered via post or using an agent) can do so via the HMRC website.
2. Prepare and file a Company Tax Return
Once registered for Corporation Tax, companies should receive a ‘Notice to Deliver a Company Tax Return’ from HMRC. A company must still prepare and submit a Company Tax Return even if it makes a loss or has no Corporation Tax to pay.
Companies can either prepare their own Company Tax Return or hire an accountant to prepare it for them. As part of the process of preparing a Company Tax Return, a company or its accountant will calculate the company’s:
- profit or loss for Corporation Tax (this is different to the profit or loss shown in the company’s annual accounts)
- Corporation Tax bill
The deadline for filing a Company Tax Return is usually 12 months after the end of the company's accounting period. However, many companies prepare and file their tax return well ahead of this deadline in order to calculate how much Corporation Tax they have to pay. This is because the deadline to pay Corporation Tax (see below) is usually before the deadline for filing a Company Tax Return.
3. Pay Corporation Tax
A company should either pay the Corporation Tax it owes or report that it has nothing to pay by its Corporation Tax deadline. This date depends on the amount of taxable profit the company made but is usually nine months and one day after the end of the company’s accounting period.
Disclaimer: The content included in this glossary is based on our understanding of tax law at the time of publication. It may be subject to change and may not be applicable to your circumstances, so should not be relied upon. You are responsible for complying with tax law and should seek independent advice if you require further information about the content included in this glossary. If you don't have an accountant, take a look at our directory to find a FreeAgent Practice Partner based in your local area.