Corporation Tax Guide for Directors
Corporation Tax is one of the main tax responsibilities for UK limited companies. Directors need to understand when the company must file, when tax is due, how taxable profit is calculated and what records are needed.
Introduction
A company’s Corporation Tax position is closely linked to its accounts, bookkeeping, payroll, VAT and director transactions. If these areas are not kept properly, the Corporation Tax return can become more complicated and may increase the risk of errors.
This guide explains the key Corporation Tax areas directors should know.
What is Corporation Tax?
Corporation Tax is paid by companies on taxable profits. Taxable profits can include trading profits, investment income and chargeable gains.
The company is responsible for calculating and paying Corporation Tax. Even if an accountant prepares the return, directors are responsible for ensuring the company meets its obligations.
Corporation Tax deadlines
The Company Tax Return deadline is 12 months after the end of the accounting period. Corporation Tax payment is usually due 9 months and 1 day after the end of the accounting period.
This means the tax payment deadline normally comes before the Company Tax Return filing deadline. Directors should prepare the accounts early enough to know how much Corporation Tax is due.
What is included in a Company Tax Return?
A Company Tax Return usually includes the CT600 form, company accounts, Corporation Tax computation and supporting schedules.
The accounts and tax computation are connected, but they are not the same thing. Accounting profit may need to be adjusted to calculate taxable profit.
Accounting profit vs taxable profit
Accounting profit is prepared under accounting rules. Taxable profit is calculated under tax rules.
Adjustments may include depreciation, capital allowances, disallowable expenses, business entertaining, private use adjustments, timing differences, losses and certain gains.
This is why Corporation Tax is not always simply calculated from the profit figure shown in the accounts.
Common company expenses
Companies may be able to claim expenses such as salaries, employer National Insurance, pension contributions, rent, software, accountancy fees, insurance, marketing, professional subscriptions, travel, office costs, phone and internet, training and repairs.
Expenses should be wholly and exclusively for business purposes. Personal costs paid by the company need to be identified and treated correctly.
Disallowable or restricted expenses
Some costs may appear in the accounts but be disallowed or restricted for Corporation Tax. These can include business entertaining, penalties, personal expenses, depreciation and certain non-business costs.
These items may need to be added back in the tax computation.
Capital allowances
When a company buys equipment or assets, the cost may not always be treated as a normal expense. Capital allowance rules may apply.
Examples include computers, tools, machinery, office equipment, commercial vehicles, furniture and fixtures.
Capital allowances should be reviewed carefully, especially if the company made large purchases during the year.
Director decisions that affect tax
Director decisions can affect both company tax and personal tax. Important areas include salary, dividends, pension contributions, director loan accounts, company cars, timing of expenses, VAT registration and business asset purchases.
Tax planning is usually more effective before the year end rather than after the accounts have already been prepared.
Common Corporation Tax mistakes
Common mistakes include:
- missing the payment deadline
- filing the Company Tax Return late
- claiming personal expenses
- poor bookkeeping
- incorrect director loan treatment
- incorrect dividend treatment
- missing capital allowances
- unreconciled VAT
- ignoring Companies House deadlines
How DepoTax can help
DepoTax can help with annual accounts, Corporation Tax returns, tax computations, bookkeeping reviews, director loan account reviews, dividend planning, payroll and VAT reconciliation, Companies House filing and HMRC filing.
Frequently asked questionsFAQ
What is Corporation Tax?
Corporation Tax is paid by companies on taxable profits, including trading profits, investment income and chargeable gains.
When is Corporation Tax due?
Corporation Tax is usually payable 9 months and 1 day after the end of the accounting period.
When is the Company Tax Return due?
The Company Tax Return is usually due 12 months after the end of the accounting period.
What is a CT600?
A CT600 is the Company Tax Return form used to report a company’s Corporation Tax position to HMRC.
Can DepoTax prepare Corporation Tax returns?
Yes. DepoTax helps limited companies with annual accounts, Corporation Tax returns, tax computations, bookkeeping reviews and HMRC filing.
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