What is a Corporation Tax Liability?

Understanding business tax liabilities and outstanding Corporation Tax payments

A corporation tax liability refers to the legal obligation for a limited company to pay 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.

The amount of corporation tax due is based on a set percentage of the company’s annual profits - for the 2021/22 tax year, a flat rate of 19% on taxable profits is charged. A company incorporated in the UK pays corporation tax on all profits, regardless of where in the world they are made.

Before April 2015, smaller businesses could take advantage of a ‘small profits rate’ of corporation tax which was lower than the main rate. This offered tax relief for limited companies earning profits under £300,000, but currently only a single rate applies.

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

Who has responsibility for ensuring this liability is met?

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 payment liability

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.

Corporation tax deadlines

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 of between £150 and £1,500 depending on how late you file the accounts
• 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.