Limited companies and other organisations including charities, clubs, societies and associations, are liable to pay Corporation Tax. Corporation Tax is the charge placed upon taxable profits made by the company. Trading profits, investment profits and Capital Gains are examples of taxable income profits. All limited companies based in the UK must pay Corporation Tax as well as foreign companies who have a UK branch. Foreign companies will only be charged Corporation Tax on taxable profits generated from business within the UK.
There are three key steps which companies must complete with regards to Corporate Tax. It is the responsibility of the company to declare that it is liable to pay Corporate Tax with the HMRC. All payments must be correct and on time. A Company Tax Return and accompanying documents must be filed.
A company is required to complete a Corporation Tax Self Assessment to calculate how much tax they should be paying for each Corporate Tax accounting period. The self-assessment form should then be sent to the HMRC. Begin with your pre-tax profit or “profit before tax” figure for the financial year, add depreciation charges, deduct capital allowances, add relevant income or chargeable gains and deduct relevant deductions, reliefs, allowances or losses. Follow this by applying the correct tax rate for your business to calculate the gross Corporation Tax payable and then deduct relevant tax credits and Income Tax previously deducted from interest income that your company received. The final step is to deduct Corporation Tax which has already been paid. This figure will tell you how much more you will need to pay or how much you have overpaid by and can claim back.
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