Managing your corporation tax
Managing your tax obligation efficiently and more!
The first rule of thumb, when it comes to paying corporate taxes or any tax for that matter, is to keep detailed and accurate records. If you cannot keep the records for corporation tax yourself, then seriously consider hiring a professional accountant or an outside accounting service to help you. There is nothing worse than getting bogged down with tax issues and get penalised for not paying or underpaying taxes.
What is corporation tax?
Corporation tax is the tax levied by the government on profits (more accurately, taxable profits) a company makes. The current UK corporation tax rate ranges from about 20% to 28%, depending on the level of profits. To qualify for the lower bracket, businesses can earn a profit of up to £300,000 a year. The higher corporation tax bracket is for businesses that earn £1.5m in profits a year. However, there are tax allowances, reliefs and losses that need to be calculated, to derive the final profit made by your business.
One key thing to remember for the UK is that the corporation tax is payable annually and due before the company tax return is due, this makes it different from income tax or VAT payments, where normally the return filing coincides with the tax payment. Businesses must pay corporation tax by 9 months after the end of the company’s tax accounting period and file by 12 months after the end of the company’s tax accounting period.
iXBRL
The HM Revenues & Customs (HMRC) is trying to make the corporation tax process easier and less costly for businesses. The recent tax act revisions have, for example, streamlined tax schedules and simplified tax calculations. As of April 2011, all company accounts and tax returns must be submitted electronically using iXBRL.
The HMRC also allows businesses to undertake their Corporation Tax Self Assessment. This allows business owners to calculate their own corporation tax liabilities and pay them. This is a good option for smaller businesses, who do not want to incur large costs to hire accountants or outside help.
It pays to plan ahead
Small businesses may find it difficult to once a year pay a lump corporation tax sum, so it pays to plan ahead. It is easy to estimate your corporation tax liabilities on-line. Also, HMRC will pay you interest, if you pay your corporation tax early. However, if you pay late, you will be charged interest and possible penalties.
The UK corporate taxation scheme is by no means simple, even after the Corporation Tax Act 2010 reforms. However, the government does offer plenty of advice and hand-holding and these services are well worth utilising: www.businesslink.gov.uk and www.hmrc.gov.uk (HM Revenues & Customs).
If the whole corporation tax issue is still too complex for you to deal with, then it may make sense to hire a professional accountant or accounting firm. Wilkins Kennedy have the expertise and experience in helping businesses organise their corporation tax. Contact our tax team today to see how we can best help your business.