Corporation Tax Returns

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What Is Corporation Tax?

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.

When Must I pay Corporation Tax?

In the UK, all companies must pay Corporation Tax on any profits, if you are operating as a business in the UK.

For Example:

  • If your company is a limited company.
  • If you are a foreign company that has a UK office or branch.
  • A co-operative, club or any other unincorporated association, for example sports clubs, community clubs etc.

How does Corporation Tax work?

Unlike other taxes, you do not receive an invoice from HMRC for corporation tax.

This does not mean that you can escape it however, as HMRC can and do investigate companies and substantial fines and levies can be placed upon a company if it fails to pay the right amount of Corporation Tax,or does not provide the appropriate paperwork at the right times.

It is your responsibility to report accurately, and pay on time any tax owed by your company.

What is the process for paying Corporation Tax?

  1. When a business is started it must first be registered for Corporation Tax, the same is true if you are restarting a dormant business. However, if you are considered an unincorporated business the process is different, and you have to write to HMRC.
  2. You must keep an accurate record, or books, of expenditure and income so that you can determine accurately how much Corporation Tax you must pay, this will be filled out on the Company Tax Return.
  3. All Corporation Tax has to be paid, or you have to report you have nothing to pay by the deadline. For most businesses this will be 9 months and 1 day once your accounting period is over.
  4. Your Company Tax Return must be filed by your companies deadline. For most companies this will be within 12 months of your accounting periods end.

For most businesses their accounting period runs the same as their financial year.

Failure to file your Company Tax Return or pay your companies Corporation Tax within the deadlines can and will result in fines and interest added to the amount owed.

What Profits Do I Pay Corporation Tax On?

Corporation Tax can be applied to the money your association or business makes from many different things. If you are in doubt it is best to seek professional advice.

Taxable profits include:

  • Any trading profits from doing business.
  • Any returns that your company makes from investments.
  • What is known as chargeable gains. Where your company sells assets at a higher amount than they cost.

For companies that are not resident in the UK, but have a branch or office in the UK, Corporation Tax is only levied on the profits it makes within the UK.

Corporation Tax for business that are trading and those that are non trading

Your organisation or business is considered to be active by HMRC in terms of paying Corporation Tax if it is conducting business, getting income or trading in any way.

However, sometimes HMRC considers a business to ‘dormant’ for the purposes of Corporation Tax, in this case your company or organisation does not have to pay Corporation Tax. An example of a’dormant’ business would be one that is not trading, or in which there is no activity.

Moreover certain unincorporated organisation can also be classed as dormant for the purposes of Corporation Tax, for example a members club, if it is trading or active yet its’ Corporation Tax bill is less than £100 for that years accounting period.

When is my business ‘active’ for the purposes of Corporation Tax?

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.

How do I tell HMRC that my organisation or business is now active?

Within 3 months of the commencement of your tax accounting period you must inform HMRC that you are now active.

That is only if you have Corporation Tax in your companies charge, and if you as a company are in fact active.

The fastest and easiest way to do this is to inform HMRC by using their online registration service.

When you do this make sure that you have your Government Gateway ID and password as you will need this to sign in.

If you do not have a Government Gateway user ID and password you can register your company by following the steps and then you will be provided with one.

If you would prefer, it is also possible for you to register your company for Corporation Tax in writing.

Your letter to HMRC must include:

  • The registration number and name of your company.
  • The date for the commencement of your companies accounting period.
  • The date by which the company has the intention to prepare it's accounts.
  • The principal place of business for the company.
  • A description of the type of business that is being conducted by your company.
  • Each company directors name and address.
  • In the event that your company has taken over a different business, your must also provide the name and address of the business that has been acquired, and the name and address of the individual whom you acquired said business from.
  • In the event that the business is a member, or a subsidiary of a group of companies or company, you will have to provide the name and address of where the parent company is registered.
  • In the event that the company has been obliged to conform with the PAYE (pay as you earn scheme) or income tax regulations 2003, you will have to provide the date upon which the obligation first began.

Moreover, your letter has to be:

  • Signed, either by the companies’ secretary or by a company director.
  • Include a signed declaration stating that the information you have provided is, to the best of your knowledge, accurate, complete and correct.

Your letter must be sent to:

Corporation Tax Services, HM Revenue and Customs, BX9 1AX, United Kingdom

If you are an unincorporated organisation, for example societies, clubs, and associations you must also inform HMRC if you have become active. This must also be submitted in writing to the above address.

When is my business considered not active for the purposes of Corporation Tax?

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 a conducting yourself in a profession or trade.

If your business is in its 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.

What does it mean if my company is ‘dormant’ for Corporation Tax?

Companies House and HMRC will use the term ‘dormant’ to describe an organisation or company that is no longer active, carrying out business activity or trading.

However Companies House and HMRC apply the term ‘dormant’ to a company or organisation in different ways.

For the purposes of Corporation Tax, HMRC will view a company as dormant if said company os not active, if the company is not within the charge of Corporation Tax, or does not have not pay Corporation Tax.

Some examples of what a dormant company might be are as follow:

  • A company that is still being set up and is not yet trading.
  • A ‘shell’ or ‘off the shelf’ company that is currently being held by a company formation agent with the intention of selling the ‘shell’ or ‘off the shelf company’.
  • A company that was previously, but is no longer, trading.
  • A company that is set to be removed from the Companies Register at Companies House as it is no longer trading.

When does HMRC treat an unincorporated organisation or club as dormant?

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 its’ members exclusively.

For every year your company is dormant you 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.

I need help with my Corporation Tax, what do I do now?

Often it is best to seek professional assistance when dealing with corporation tax, because any error or lateness in payment, or indeed in the appropriate paperwork, can result in large fines by HMRC.

If you feel you need some assistance, why not contact our professional, expert and friendly accountants today to see what they can do to help.

Corporation Tax Frequently Asked Questions

What is VAT?

VAT means Value Added Tax, and it is a tax on consumption. If you sell good s or services VAT must be applied, included in your price, and sent to HMRC.

When do I need to register for VAT?

Your business must register for VAT once it's turnover is at or exceeds £85,000 a year.

What can I reclaim VAT on?

VAT can be reclaimed on many goods or services. However some of these goods or services are exempt from VAT. Non-UK VAT is non-reclaimable on your UK VAT return. If VAT has not been charged correctly, this is also not reclaimable.

Some items do not have VAT charged on them. For example:

  • All purchases from business or persons that are not VAT registered
  • Bank Charges
  • Insurance
  • Interest
  • Most books
  • Salaries
  • Stamps from the post office<
  • Train tickets
What items are zero rated?

When an item is 'zero-rated' they are still taxable under VAT, however the VAT rate is 0 per cent.

Lots of items are considered to be 'zero-rated', for example, books, children's clothing, magazines, cycle helmets, newspapers, industrial protective clothing such as hats and boots, leaflets and pamphlets, brochure printing, building services for disabled people, aircraft maintenance and repair.

What expenses can I claim for on my CIS Refund?

There are many things that you can claim your money back for, these are wide and varied. Most costs incurred whilst doing your work are re-claimable on your taxes.

Many expenses that can be claimed are not often thought of, but we are here to help. We work hard to make sure you get the full refund you deserve.

My records are incomplete, can I claim for my expenses?

We often have sub-contractors come to us with this issue.

As professional accountants we have other ways in which we can calculate your income and expenses. We will use these to make sure you get your full refund from the CIS taxes you have paid.

Your individual accountant can then work with you to help the record keeping, making sure it doesn’t present you problems in future.

Is CIS deductable from mileage?

Unfortunately, you cannot deduct your mileage from the taxes as you are self-employed and registered for CIS.

When dealing with a contractor as a sub-contractor in your daily rate you should be charging for your travel costs and insurances.

What is VAT?

VAT means Value Added Tax, and it is a tax on consumption. If you sell good s or services VAT must be applied, included in your price, and sent to HMRC.

How much of CIS is tax deductable?

Most ‘labour only’ sub-contractors will have tax deducted at a flat rate of 20%.

This can only happen if HMRC know your UTR on the list of CIS subcontractors.

However, this can rise to 30% as a penalty for not doing your CIS returns on time or correctly.

How long does it take to become CIS registered?

This all depends on whether you are already employed.

First you must register as self-employed, if this has already been done then your CIS registration can be done as quickly as in a few days.

However, if you are not yet registered to be self-employed registration with CIS can take up to 6 weeks.

Who pays CIS?

Contractors must deduct money from their subcontractor’s payments to pay HMRC under the Construction Industry Scheme (CIS).

These CIS deductions are advance payments towards the subcontractors National Insurance and tax. This is to ensure that sub-contractors are up to date with their taxes.

However often the subcontractors will have overpaid their taxes for the year and we can help to get a rebate for them.

Should I register for CIS?

If you are a contractor, you must be registered for CIS before you take on your first sub-contractor.

Sometimes they should not be a subcontractor but an employee instead and you must also check this, if they are a subcontractor instead of an employee then you will most likely incur a fine. You must also check that your subcontractors are registered for CIS with HMRC.

If you are a subcontractor you must register for CIS before you begin work or you will incur a penalty, and your tax rate will rise. Usual from 20% to 30%.

What is the difference between PAYE and CIS?

For subcontractors, under the construction industry scheme you will pay a fixed amount of 20% which will cover you National Insurance and income tax.

Many subcontractors are then entitled to a refund under this scheme as it does not consider your expenses.

Under the Pay as You Earn (PAYE) Scheme, as an employee, then you pay the ‘correct’ amount of tax. Any refund will be given through your wages.

Is CIS scheme compulsory?

With a number of similarities to PAYE, the Construction Industry Scheme (CIS) is a mandatory withholding tax where either 20% or 30% is deducted from a self-employed construction subcontractor's payments and paid directly to HM Revenue and Customs on their behalf.