One area we often get asked about is Corporation Tax, what it is, how it works and who pays it.
What is Corporation Tax and do I need to pay it?
- Corporation Tax is a tax that all limited companies pay on profits
- You only need to pay it if you trade as a limited company
- It’s a tax that’s payable against the taxable profits your limited company makes. Profits are what you make after deductions of allowable business costs and expenses
- Companies don’t receive tax-free allowances as individuals do
- Corporation Tax is also due on any money the business makes from investments
- You will need to file a Corporation Tax Return with HMRC. Unlike sole traders, where owed income tax is calculated by HMRC on details provided to them, a company has to calculate itself what it owes in corporation tax.
- Your annual accounts need to be filed to both HMRC and Companies House
- Your company can be fined if you provide inaccurate information on your company tax return
Do I have to pay corporation tax as a sole trader?
No, you are your business, so you will follow the same thresholds as a PAYE person, although the national insurance rates are different.
Assuming there are no adjustments made by HMRC to your personal allowance, each person can earn £12,500 (2020/ 2021 tax year) before any tax is charged. Here’s what you pay on the profits you make:
Tax 0% – £0 – £12,500
Tax 20% £12,501 – £50,000
Tax 40% £50,001 – £150,000
Tax 45% £150,001 and above
What are the rates of Corporation Tax?
Corporation Tax rates can change each year.
The rate is currently set at 19%
You can find out more here at the Government website ( https://www.gov.uk/corporation-tax).
Corporation tax can be a large bill for some companies. You don’t want to be paying more than you should, so by making sure you stay on top of your accounts, you can save towards the upcoming bill whilst staying on top of your cash flow.
Kasion can help with all aspects of Corporation Tax, from making sure that your accounts are accurate to avoid penalties, ensuring you’re not paying more than you should, helping with filing your return which will give you more time to focus on what you’re good at, your business. Get in touch here