Corporation Tax

What is Corporation Tax


Introduction to Corporation Tax

Corporation tax is a levy imposed on the net income of a company. It is calculated from the taxable profits of limited companies, foreign companies with a branch or office in UK and other organizations such as clubs, societies, associations etc. The corporation tax rate for the years 2017-18, 2018-19 & 2019-20 is 19%, apart from ring fencing companies. The corporation tax rate tends to change after announcement of the budget by the Chancellor.

Corporation Tax

Who Pays Corporation Tax?

All companies in the UK pay taxes on profits annually at a pre-determined rate. Other organizations such as clubs, societies, and associations are also liable to pay corporation tax. Below is a list of the organizations that must pay corporation tax in the UK –

  1. All limited companies

  2. Foreign companies with a branch or office in UK

  3. Clubs such as sports club, social clubs, and holiday clubs etc.

  4. Association such as housing associations and trade associations

  5. Societies such as friendly societies & provident societies

  6. Charitable organizations, a company subsidiary of a charitable organization, a company wholly owned by a charity

  7. A group of individuals doing business that is not a partnership

  8. Co-operatives

  9. Other unincorporated associations

Historical Corporation Tax Rates

Historical corporation tax rates give you the overview of corporation tax starting from 2006 to 2021.

Corporate Tax Rate from 2006 to 2010

Year Small companies rate Marginal relief fraction Main rate (corporation tax ) Special rate for unit trusts and open-ended investment companies
2006-07 19% 11/400 30% 20%
2007-08 20% 1/40 30% 20%
2008-09 21% 7/400 28% 20%
2009-10 21% 7/400 28% 20%
2010-11 21% 7/400 28% 20%

Corporate Tax Rate from 2011 to 2015

Year Small companies rate Marginal relief fraction Main rate (corporation tax ) Special rate for unit trusts and open-ended investment companies
2011-12 20% 3/200 26% 20%
2012-13 20% 1/100 24% 20%
2013-14 20% 3/400 23% 20%
2014-15 20% 1/400 21% 20%
2015-16 20% N/A 20% 20%

Corporate Tax Rate from 2016 to 2018

Year Main rate (corporation tax ) Special rate for unit trusts and open-ended investment companies
2016-17 20% 20%
2017-18 19% 20%
2018-19 19% 20%
2019-20 19% 20%
2020-21 17% 20%

These following limits remained same from 2006 to 2016:

  1. Small corporation tax limit = £300,000

  2. Marginal relief lower limit = £300,000

  3. Marginal relief upper limit = £1,500,000

Small Companies Rate

Small businesses are those businesses with profits of less than £3,000,000 having the same figure since 1994. If the profits are above £300, 000 the main rate of corporation tax will be charged but if the companies having profits between £300,000 and £1,500,000, marginal tax relief is provided.

Calculating Marginal Tax Relief

If your company profits are between £300,000 and £1,500,000, you can reduce your tax bill by claiming marginal relief.

  1. £300,000 (the lower limit)

  2. £1,500,000 (the upper limit)

Example For 2013-14 With Profits of £1,200,000

  1. Calculate total taxable profits = £1,200,000

  2. Calculate Corporation Tax due at the main rate of 23% = £276,000

  3. Subtract taxable profits from upper limit for Marginal Small Companies' Relief £1,500,000 - £1,200,000 = £300,000

  4. Multiply by the MSCR fraction 3/400 to calculate the relief you can claim = £300,000 x 3 divided by 400 = £2250

  5. Deduct the relief from the Corporation Tax due = £276,000 - £2250 = £273,750

Profits Exempt from Corporation tax

Unfortunately, every limited company needs to pay corporate tax. Some of the organizations are exempt from paying tax if they can satisfy HMRC that their income only applies to charitable purposes. For example – income from fundraising events.

Read also: The Benefits and Drawbacks of Shifting Over To a Limited Company

Why should you inform HMRC that you are trading?

If you have started a new limited company, you must tell HMRC within the first 3 months of creating the business. You should register on online portals for HMRC taxes too.

How Nomisma Corporation Tax Software can help you

Nomisma offers you the best corporation tax software that enables you to file your taxes quickly and simply. It is very helpful for freelancers, agents, contractors and small & medium sized businesses as it -

  1. Keeps track of your submission status

  2. Minimizes human error

  3. HR compliant software

  4. Provides unlimited users and support

  5. Easy to use

  6. Handled by our accounting experts

Take advantage of our free 30-day trial period. We want you to try Nomisma with no strings attached to see how good our software is. Just call our experts on 020-3021-2326 or e-mail us at info@nomismasolution.co.uk

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