Understanding the UK Corporate Tax Rate: Key Factors and Implications for Businesses

UK Corporate Tax Rate: Key Factors and Implications

Demystify the UK corporate tax rate and its critical implications for businesses. Gain a comprehensive understanding of key factors that influence tax rates and how they impact your company’s financial outlook.

Corporation Tax in the UK is anything but simple; it has seen multiple reforms over the years by various governments. Understanding Corporation Tax and how it works and affects you and your business has never been more important.

That is why we’ve put together this comprehensive guide to Corporation Tax, featuring everything you need to know.

IMPORTANT: The Corporation Tax rate in the UK changed in April 2023.

What is Corporation Tax?

  • The Tax on UK Rate (April 2023 onwards): 25% 

Corporation Tax in the UK is a corporate tax levied on the annual profits. This is paid by UK resident companies and branches of overseas companies. The UK Corporation Tax rate is currently 25% for all limited companies.

Until April 2023, the previous Corporation Tax main rate was 19%.

The 25% main rate is payable by companies with taxable profits above £250,000. A small profits rate (SPR) will also be brought in for companies with profits of £50,000 or below, meaning they will pay 19%.

Companies with taxable profits between £50,000 and £250,000 will pay the main rate limited by a marginal relief. This is something that will gradually increase the average Corporation Tax rate. See below.

Taxable profit level Corporate Tax UK Rate

> £250,000 25%

< £50,000 19%

between £50,000 and £250,000 marginal tax rate of 26.5% on profits above £50,000

Who pays Corporate Tax UK?

All taxable UK-limited companies must pay Corporation Tax on their annual profits. Still, Corporation Tax liabilities can also extend to unincorporated organizations like co-operatives, trade and housing associations, members, clubs, or associations.

Who Is Responsible For Paying Uk Corporate Tax Rate?

The company director, or directors, are responsible for making sure UK Corporate Tax returns for a company are filed with HMRC and that all taxes have been paid by the appropriate deadline. Many companies hire specialist tax accountants to prepare Corporation Tax returns, but the company directors’ legal responsibility remains.

How Is The Uk Corporate Tax Rate Paid?

This kind of Tax can be paid electronically at a bank or post office. If same-day payment is required. The Corporate Tax bill can be paid by CHAPS, online, or over the telephone. BACS transfers, direct debits, and credit or debit card payments. Usually this will take around three working days. For full instructions on how to pay your corporation tax, consult the UK Government website.

When Is The Corporate Tax UK Deadline?

Your Corporate Tax UK deadline is usually 12 months after the end of the accounting period the return covers.

You must also note that the deadline to pay a Corporate Tax UK is separate and is usually nine months and one day after the accounting period ends. Note that large companies can be liable to pay Corporation Tax in installments, with some of these payments falling due in the accounting year (rather than after the year-end).

Missing deadlines will result in penalties.

What Are The Penalties For Missing The UK Corporate Tax Return Filing Deadline?

The following penalties apply when Corporation Tax returns are filed late:

Time after your deadline Penalty

One day £100

more than three months Another £100

Over six months, A 10% penalty on top of your unpaid Corporation Tax

more than 12 months of information on Corporation Tax penalties can be found on the UK government website.

What Are The Penalties If You Do Not Pay Corporation Tax On Time?

If you cannot pay your company’s UK Corporate Tax bill on time, HMRC will charge interest on the outstanding balance. In case you fail to make payments, HMRC may take several courses of action to ensure that you pay the outstanding Corporation Tax. These actions include:

  • Contacting debt collection agencies
  • Recovering the money directly from your bank or building society account
  • Selling your assets
  • Initiating court proceedings
  • Liquidating the company and closing your business down

Outstanding Corporation Tax must be paid on time, as the implications of not paying can be severe – they may even jeopardize your business.

If you cannot pay your outstanding Corporation Tax, HMRC can help by setting up a payment plan. They must be contacted as soon as possible, not after deadlines.

Large companies that must pay in installments can incur penalties if payments are not made on time.

What Happens If You Submit Inaccurate Information With Your Corporation Tax Return?

Submitting a Corporation Tax return with inaccurate information can cause all issues, starting with potential fines.

There are different ways in which HMRC perceives errors, and penalties will vary depending on the severity of the inaccuracy, whether the inaccuracy was deliberate, and whether you attempted to conceal it.

  • If disclosed to HMRC, accidental errors in your Corporation Tax return will result in a fine between 0-30% of your total Corporation Tax bill. If you fail to disclose the error and HMRC discovers it, this fine will be at least 15%.
  • Deliberate, unconcealed inaccuracies in your Corporation Tax return, if disclosed to HMRC, will result in a 20-70% fine. In case discovered by HMRC, undisclosed inaccuracies of this type will result in a fine of 35-70%.
  • On purpose, concealed inaccuracies are much more serious and will result in a fine between 30-100% of your total Corporation Tax bill if you disclose the inaccuracy to HMRC. If you attempt to hide this and HMRC discovers it, your fine will be between 50-100%.
  • Inaccuracies relating to offshore issues may incur even higher penalties.

Business tax accountants can ensure accurate and error-free completion of your Corporation Tax returns by paying close attention to detail and having a clear understanding of the information being submitted.

What Is The Trend In The Uk Corporation Tax Rate?

The Corporate Tax rate in the UK has been getting lower since 2010. In that year, Corporation Tax was set at 28%, with significant reductions taking place in the following few years. After 2014, the rate of reduction slowed down, and from 2017 to April 2023 the rate was 19%. Since April 2023, the Corporation Tax main rate has been 25%.

Corporation tax main rate in the UK (2005-2023)

What Is The Threshold For Uk Corporate Tax?

No Corporation Tax threshold exists – all limited companies pay Corporation Tax on their profits.

Before 2015, the amount of corporation tax you would pay depended on the business’s profitability. Companies with profits up to £300,000 would pay 20%, known as the “small profits rate.” Fir whose profits exceeded £1,500,000 would pay 21%, which was known as the “main rate.”

Companies whose profits were between those amounts would pay at a hybrid rate between the small and main rates. In the years prior to 2015, the gap between the rates was greater. The new rates effective from April 2023 will operate in a similar way but with lower thresholds.

What is Ring Fence Corporation Tax?

Companies involved in the extraction of oil and gas in the UK, as well as the UK Continental Shelf – which includes parts of the North Sea, the North Atlantic Ocean, the Irish Sea, and the English Channel – pay Ring Fence Corporation Tax (RFCT), which is similar to Corporation Tax.

The Ring Fence Corporation Tax main rate is 30%, and there is also a small profit rate of 19%.

Do You Have To Pay Corporation Tax On Dividends?

Dividends are payments a company makes to shareholders when it has made a profit. Businesses do not need to pay Corporation Tax on dividends. However, if the individual shareholder receives dividends greater than £2,000 before 6 April 2023, they will need to pay Income Tax on this. This tax-free amount reduces to £1,000 in April 2023 and £500 in April 2024.

Are Dividends Deductible From Corporation Tax?

Paying out dividends will not reduce your Corporation Tax bill. Corporation Tax is paid on a company’s profits before any dividends are paid out.

This means a dividend is not a tax-deductible expense and therefore does not lower the profits of a company, nor does it appear on the company’s income statement.

Do Sole Traders Pay UK Corporate Tax?

Sole traders do not pay Corporation Tax; instead, they are required to pay Income Tax on their business profits via self-assessment.

How Do You Pay Less Corporate Tax In The UK?

There are many opportunities where companies can ensure they are paying only their fair share of Corporation Tax.

Through careful and detailed tax planning, you can minimize your Corporation Tax bills while enjoying tax efficiency in several other areas, including:

  • Tax relief on property and equipment through capital allowance claims
  • Corporate tax UK relief for innovative companies through R&D tax credits
  • Patent box tax relief
  • Much more…

Shorts Chartered Accountants has a team of experienced tax advisers, the biggest in the region. We offer strategic advice that can turn business tax planning into an opportunity, not an endurance test.

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