Understanding Corporation Tax for UK Small Business Owners

Running a small business in the United Kingdom comes with various responsibilities, and one crucial aspect to grasp is Corporation Tax. Corporation Tax is a tax levied on the profits of a company, and understanding its implications is essential for small business owners. This article provides a basic overview of Corporation Tax, its rates, deadlines, and key considerations for UK small businesses.

What is Corporation Tax?

Corporation Tax is a tax on the profits of limited companies and certain unincorporated associations. It is different from other taxes, such as Value Added Tax (VAT) and income tax, as it is specifically applied to the profits generated by a business. The tax is payable to HM Revenue and Customs (HMRC).

Key Points for Small Business Owners:

1. Taxable Profits:

Corporation Tax is levied on the taxable profits of a company. Taxable profits are calculated by deducting allowable business expenses from the company’s turnover.

It’s important to keep accurate financial records to determine the correct taxable profits. See our blog on Making your end of year process run smoothly for top tips on keeping financial records click HERE

2. Rates:

The Corporation Tax rate may vary, and it’s crucial to be aware of the prevailing rates. As of the last update, the main rate is 19% for businesses with profits of less than £50,000, those with a profit of more than £250,000 this rises to 25%. However, rates can be subject to change, so it’s advisable to check the latest rates with HMRC – click here for the latest update from HMRC 

3. Filing and Payment Deadlines:

Small businesses are required to file a Corporation Tax return with HMRC, usually within 12 months after the end of the accounting period.

 Corporation Tax payments are typically due nine months and one day after the end of the accounting period.

4. Allowable Expenses:

Businesses can reduce their taxable profits by deducting allowable business expenses. These include costs directly related to running the business, such as staff wages, office rent, and equipment.

5. Capital Allowances:

Capital allowances can be claimed on certain assets, like machinery or equipment, reducing the amount of taxable profit.

6. Losses:

 If a business incurs losses, these can often be carried forward to offset against future profits, reducing the overall Corporation Tax liability.

7. HMRC Communication:

Small business owners should stay informed about updates from HMRC. Registering for online services with HMRC allows for efficient communication and timely submission of tax returns.

8. Seek Professional Advice:  

Considering the complexity of tax regulations, seeking professional advice from accountants or tax advisors can be invaluable. They can help navigate the intricacies of tax planning and ensure compliance with regulations.

Understanding and managing Corporation Tax is a vital aspect of operating a small business in the UK. By staying informed about the latest regulations, maintaining accurate financial records, and seeking professional advice when needed, small business owners can effectively navigate their tax obligations and contribute to the long-term success of their ventures.

If you want some advice on Corporation Tax Planning, please get in touch with us by emailing admin@jarem.co.uk

If you are looking for more information on what we provide businesses then click HERE.