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Corporation tax

How to Pay your Tax

Corporation tax

Corporation tax is paid by limited companies on their profits. It is also paid by:

  • members’ clubs, societies and associations
  • trade associations
  • housing associations
  • groups of individuals carrying on a business but not as a partnership, e.g. co-operatives, even if they are not limited companies.

Corporation tax is paid (2010-11 rates) at the small companies’ rate of 21% for profits of up to £300,000 and a main rate of 28% for profits of over £1.5 million.

Companies making profits between £300,001 and £1.5 million receive marginal rate relief, which eases the transition between the lower and higher rates.

If your company is liable to pay corporation tax, you must:

  • Tell HM Revenue & Customs (HMRC) that your company exists and that it is liable for tax.
  • File a self-assessment tax return for your company, on which you calculate your own corporation tax liability and pay it without prior assessment by HMRC.
  • Keep records of all company expenditure and income in order to work out your tax liability accurately.

How to pay: Corporation tax is normally due by nine months and one day after the end of your company’s accounting period. So if your company tax return covers an accounting period 1 January 2010 to 31 December 2011, corporation tax must be paid no later than 1 October 2012.

If your accounts cover a period of more than 12 months – which may happen if your newly-formed company is preparing its first accounts to cover a period of more than 12 months, or your existing company changes its financial year end – the tax due is based on the first 12-month period.

If you do not let HMRC know that you are liable for corporation tax, file your company tax return incorrectly, or pay your corporation tax late, you may incur a financial penalty. If you do not pay your corporation tax on time, HMRC will charge interest from the day it is due until you pay it.

Seeking professional advice is a wise step to ensuring that your financial affairs are as tax-efficient as possible.

HMRC recommends that corporation tax payments are made electronically, for example by direct debit, Bank Giro or via the Post Office

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