Corporation tax isn't as complicated as it might seem. Initially it
is important to understand that unlike a sole trader or a partnership, only a
limited company pays corporation tax instead of paying both income and capital
gains tax. It is payable on the net profit of a company.
The net profit is calculated by deducting authorized expenses from
the trading income, chargeable gains (same as capital gains) and investment
income such as rent. The more tax-deductible expenses that you can put through
the company the less you will pay in corporation tax. An accountant can advise
you on the exact expenses that you can claim. It is important to remember that
only expenses that are necessary for expenditure of the business can be
deducted. For example:
Accountants and auditors fees
Advertising and marketing costs
Bad debts in the year incurred
Business bank charges
Business software
Capital allowances (For assets that are purchased by the
company a capital allowance is set against the profits of the company to reduce
the amount of profit on which corporation tax is payable. You see this every
month on your profit and loss account as 'depreciation'.)
Dues to professional or business associations
Employee business expenses
Insurance for the business
Interest on business loans
Internet access
Leasing rentals for business purposes
Legal costs on business matters
Mobile telephone
Company car (Expenses include garage rental, insurance,
motoring association subscriptions, parking, fuel, road tax and general service
and maintenance)
National Insurance
Patent application costs
Pensions provided to employees
Professional fees for advice
Wages
When and how is it paid?
For the majority of
companies the accounting period is 12 months. However if your company makes up
its accounts over a longer period of time if necessary the tax is split into
two accounting periods, an initial 12-month period, then a second period for
the remaining months.
The rate of tax is set out in the annual budget, and is fixed for the
new tax year (1 April-31 March). The final corporation tax payment is made nine
months after the tax year-end, and is declared to HM Revenue & Customs on the
form CT200. Corporation tax is now self-assessed, so the tax office only makes
an official demand for the money once an amount has been agreed after filing
the tax return. This has to be done in the following 12 months after the
accounting period, if not penalties will have to be paid
