What is a Corporation Tax Liability?

Understanding Corporation Tax for Limited Companies

All registered companies must pay corporation tax on its annual profits. As a director you must register your company with HMRC for corporation tax, and pay the liability within nine months and one day of the company’s accounting year-end.

As of tax year 2023/24. companies with profits under £50,000 are subject to the small profits rate of corporation tax which is currently 19%. Companies with profits over £250,000 will pay the main rate of corporation tax which is currently 25%. For those companies with profits between £50,000 and £250,000, they will pay tax at the main rate but this will be reduced by a marginal relief. This marginal relief ensures companies experience a gradual increase in corporation tax liability from 19% up to the 25% figure.

Begbies Traynor can offer professional guidance on your company’s liability for corporation tax, and advise on the potential ramifications of non-payment.

Whose responsibility is it for paying corporation tax?

Even though an accountant will have prepared your limited company accounts, the responsibility for ensuring the information is correct, and for paying your corporation tax, lies with the company’s directors.

A director must approve the accounts (form CT600) prior to their submission to Companies House, and ensure the amount due has been paid to HMRC prior to this. Failure to do this can result in financial penalties being levied against your company, and could increase the chances of a tax investigation taking place.

Corporation tax return and director responsibilities

Corporation tax is payable on all business trading activities, including the sale of assets, income from sales, rental of property or land, and from savings deposits. Limited companies must retain their tax records for a minimum period of six years, and these records include receipts, invoices, calculations and any other tax-related information. It is permissible to store the records electronically, as long as they are legible and secure.

Payment must be made electronically before the corporation tax return is filed, with the deadline being nine months and a day from the end of your accounting year. Form CT600 must also be filed online, and should include all computations and calculations with regard to the amount paid.

What is the corporation tax deadline?

Your corporation tax return must be filed either 12 months and one day after your company’s accounting year-end, or three months from the date of the reminder letter – the ‘Notice to Deliver a Company Tax Return.’

In the first year of trading it may be necessary to file two corporation tax returns if your accounts cover more than 12 months. They should be submitted at the same time, along with the statutory accounts.

Penalties for failing to meet your corporation tax liability

• Failing to inform HMRC that you are liable for corporation tax: a percentage of the tax due, depending on whether it was a deliberate failure or a genuine mistake
• Failing to file your company accounts on time:  fines from £100 for filing a day late, and 10% of the corporation tax if you fail to file for 12 months
• Errors within your company tax return: a percentage of the extra tax due – the level depending on the type of error, and whether or not it is viewed as deliberate

Other types of organisation may also incur a corporation tax liability depending on their structure, including charities, housing associations, societies and cooperatives.

Begbies Traynor can advise on your responsibilities in relation to corporation tax, and ensure your company remains HMRC compliant. Call one of our licensed insolvency practitioners to arrange a free same-day consultation to establish your needs.