Corporation Tax Returns

Corporation Tax, also known as company or corporate tax, is a taxation imposed on the capital or income of a business or certain legal entities imposed by a jurisdiction such as a state or economic region.

These taxes are often set at a national level, however sometimes rates of corporation tax may vary due to regional or local governance.

For example, Hong Kong Special Administrative Region of the People’s Republic of China, will apply a different rate of tax to that of mainland China, or the area outside of the Special Administrative Region.

Essentially, corporation tax is a tax that is applied to corporations or businesses and is variable dependent upon the state or region that it is levied.

We deal mainly with corporation tax in the UK, however we also have expertise in certain areas across the world, contact our team of experts to see how they can help you.

As a rule, your organisation, business or company will be considered as active for the purposes of Corporation Tax when it is:

• Conducting any business activity such as a professional activity or trade in the UK.
• Making a surplus or profit from the buying and selling of any goods.
• When your company is providing any services.
• If you are earning any interest.
• If you are managing any investments.
• If you or your company is in receipt of any other income.

It should be noted that to be classed as active for the purpose of Corporation Tax it is not necessarily the same definition that is used by HMRC when it is looking to certain other taxes such as VAT.

It is also not necessarily the same definition being used by all government agencies, for example Companies House.

Furthermore, the definition as being active for Corporation Tax purposes does not always match the definition that is used in other accounting conventions, the International Financial Reporting Standards created and issued by the International Accounting Standards Board, or the Financial Reporting Standards created and issued by the Accounting Standards Board in preparation of audited accounts.

Often it is best to seek professional support if you are uncertain, as the fines and levies for errors from HMRC can be substantial.

Your organisation or business may be considered as not active for the purposes of Corporation Tax by HMRC under a number of different circumstances.

If your organisation or company is not as yet trading.

Your organisation or company will not be considered active if has not yet conducted any business activity or commenced trading.

It is considered business activity if you are buying and selling goods at a profit, or surplus, or with a view to make a surplus or profit, or if you are conducting yourself in a profession or trade.

If your business is in it's infancy and just being formed, it may be considered to HMRC as not active for the purposes of Corporation Tax.

Despite this your business may still be carrying out pre-trading activities, such as incurring pre-trading expenditure in the set up of your business.

These pre-trading activities are often not deemed as active by HMRC.

Expenditure or activities that HMRC do not deem as trading, or active, for the purposes of Corporation Tax, also include:

• The negotiation of contracts or the writing of a business plan or other such preliminary activities.
• Some preliminary expenditures, for example spending whilst determining whether or not to set up the company or business.

When your organisation was previously trading yet is no longer trading.

If your business is currently not conducting any business activity then it is HMRC will normally considered it as a dormant business.

In the event that your business is a company then you must inform Companies House that it is dormant yourself.

Your unincorporated organisation or company may be treated as dormant by HMRC for the purposes of Corporation Tax if it is currently active yet also meets the two following conditions:

• The expected liability for your annual Corporation Tax is not expected to be in excess of £100.
• If the organisation is run for the benefit of it's members exclusively.

For every year your company is dormant your company can not have:

• Accrued any losses from allowable trading losses that it may wish to claim tax relief on.
• Any asset it is likely going to sell off, which would give your organisation a chargeable gain.
• Any annual payments or interest which needs to be paid out from which tax can be deducted and paid to HMRC.

In the event that your organisation satisfies the above criteria it is likely that HMRC will contact you, with the proposition that you make your company dormant.

In the event that this happens you will receive a ‘Notice to deliver a Company Tax Return’, this will be reviewed, usually every 5 years at least.

This treatment may also be applied by HMRC for your flat management company.

However, your organisation will not be treated as dormant by HMRC if it is a:

• Club that is privately owned, or run by its members for profit or as a commercial enterprise.
• If, as explained by the Housing Act 1986, you are a registered social landlord or a housing association.
• If you are a trade association.
• If you are a thrift fund.
• If it is a holiday club.
• If it is a friendly society.
• If it is a charity that is a subsidiary of, or completely owns the company.