Corporation Tax in the UK – Updated

Corporation Tax is a key tax for businesses operating in the UK. It is levied on the profits made by companies and other organizations such as clubs, societies, associations, and other unincorporated bodies. This guide provides an overview of the Corporation Tax for the 2024/25 tax year, highlighting the main points businesses need to be aware of.

Corporation Tax Rate for 2024/25

For the tax year 2024/25, the Corporation Tax rate remains as follows:

  • Main Rate: 25% for companies with profits over £250,000.
  • Small Profits Rate: 19% for companies with profits up to £50,000.
  • Marginal Relief: For companies with profits between £50,000 and £250,000, a tapered relief is applied to smooth the transition between the small profits rate and the main rate. This relief effectively reduces the tax rate for companies in this bracket.

Marginal Relief Calculation

Marginal Relief is calculated using the following formula:

Marginal Relief=(Upper Limit−Profits)×(Main Rate−Small Profits Rate)Upper Limit−Lower Limit\text{Marginal Relief} = \frac{(\text{Upper Limit} – \text{Profits}) \times (\text{Main Rate} – \text{Small Profits Rate})}{\text{Upper Limit} – \text{Lower Limit}}Marginal Relief=Upper Limit−Lower Limit(Upper Limit−Profits)×(Main Rate−Small Profits Rate)

pay corporation tax

Where:

  • Upper Limit is £250,000.
  • Lower Limit is £50,000.
  • Main Rate is 25%.
  • Small Profits Rate is 19%.

Allowable Deductions and Reliefs

Companies can reduce their Corporation Tax liability through various deductions and reliefs, including:

  • Capital Allowances: Deductions for the depreciation of certain assets.
  • Research and Development (R&D) Relief: Enhanced deductions for qualifying R&D expenditure.
  • Creative Industry Tax Reliefs: Reliefs for companies in the creative sectors, such as film, television, and video game production.
  • Patent Box: Reduced tax rate on profits earned from patented inventions.
  • Loss Relief: The ability to offset losses against future profits or carry back losses to offset against profits from previous years.

Filing and Payment Deadlines

Companies must adhere to specific deadlines for filing their Corporation Tax returns and paying any tax due:

  • Filing Deadline: Corporation Tax returns must be filed 12 months after the end of the accounting period.
  • Payment Deadline: Corporation Tax must be paid 9 months and 1 day after the end of the accounting period.

Missing the Corporation Tax return filing deadline can result in a series of penalties imposed by HM Revenue and Customs (HMRC). Here’s a detailed breakdown of the penalties for late filing:

Initial Penalty

  • 1 day late: An automatic fixed penalty of £100.

Further Penalties

  • 3 months late: Another automatic fixed penalty of £100.
  • 6 months late: HMRC will estimate your Corporation Tax bill and add a penalty of 10% of the unpaid tax.
  • 12 months late: Another 10% of any unpaid tax is added to your bill.

Additional Considerations

If your company has a history of late filings, the penalties can be higher. For instance, if your company is late three times in a row, the £100 penalties are increased to £500 each.

Penalties for Inaccurate Returns

In addition to penalties for late filing, if you file an inaccurate return, you could face penalties based on the potential lost revenue. These penalties vary depending on the behavior leading to the inaccuracy:

  • Careless: 0% to 30% of the potential lost revenue.
  • Deliberate: 20% to 70% of the potential lost revenue.
  • Deliberate and concealed: 30% to 100% of the potential lost revenue.

Interest on Late Payment

On top of penalties for late filing, interest is charged on any unpaid Corporation Tax from the due date until the payment is made. The current interest rate can be found on the HMRC website and is subject to change.

Penalties for Late Filing and Payment

Companies that fail to file their returns or pay their Corporation Tax on time may face penalties and interest charges. The penalty structure is as follows:

  • Late Filing: An initial penalty of £100, followed by additional penalties if the return is more than three months late.
  • Late Payment: Interest is charged on late payments, and additional penalties may apply for prolonged delays.

For more detailed information or specific queries, businesses should refer to the official HMRC guidelines or seek professional advice.