news

How to pay Corporation Tax as an SME

  • Company Tax Return

    As an SME business, a big annual task is paying corporation tax. It can be a complex business, with several factors to take into account when submitting your corporate tax returns. At Mollan & Co, we have over 40 years of experience as a small business accountant, so have used this knowledge to compile this simple step-by-step guide to make the process of submitting corporation tax as an SME as easy as possible.

    Contact us today for a free, zero-obligation consultation.

    What is Corporation Tax?

    Corporation tax is the taxation system HMRC uses to tax businesses on their annual income. The government uses the intake to fund schools, hospitals, roads, public safety programs, and other infrastructural projects, including healthcare.

    Corporation tax provides makes many fundamentals possible in the UK:

    • Funding public services: Corporation tax provides essential funding for government services that benefit everyone, including NHS, education, and public infrastructure.
    • Economic stability: By taxing corporate profits, the government can redistribute wealth and invest in economic development, creating a more stable and equitable economy.
    • Equity: Corporation tax ensures companies contribute to the UK’s legal and economic institutions.

    H2: How to Pay Corporation Tax?

    As an SME company, your corporation tax payment process will follow a fairly strict process:

    1. Calculate Profit: Calculate your taxable profits by subtracting allowable business expenses from your total income.
    2. Find Tax Rates: Multiply the taxable profit by the tax rate – as of 2023, the corporation tax rate is now 25% in the UK. If your company earns £50,000 or less then you must pay the previous rate of 19%.
    3. Make Your Payment: You must file a Corporation Tax Return (CT600) and pay any tax due within 9 months and 1 day after the accounting period ends.

    You pay your corporation tax through your business tax account on HMRC. To do this:

    1. Sign into your Business Tax Account.
    2. Select “Corporation Tax Payment”: On the welcome page, there will be an option to make a corporation tax payment. The header is Corporation tax and your unique taxpayer reference (UTR) will be displayed directly beneath it.
    3. Select the link and choose a way to pay: Three options should appear here. Pay by bank account, Direct Debit, or Debit card or corporate credit card. Pick one and continue through the steps as presented.

    For credit cards, HMRC will charge a non-refundable fee; for debit cards, they don’t. For more information, look at the official HMRC Gov video.

    Registering to pay corporation tax

    If you run a UK-based company, you must register with HMRC to pay corporation tax. This is a separate process from registering your company with Companies House.

    You must register to pay corporation tax within three months of starting your business activities (e.g., buying, selling, advertising, employing staff).

    For new companies, this is the registration process:

    1. Log into Government Gateway: Use your Government Gateway account to log into HMRC’s online services.
    2. Go to “Register for Corporation Tax”.
    3. Provide your Unique Taxpayer Reference (UTR): You will also give the date your company began operating, and the date its annual accounts go up to.
    4. Provide additional information as necessary.

    If you don’t have a Government Gateway account, you will need to create one in order to access HMRC’s online services. Once you complete registration, HMRC will confirm it and you will be able to pay corporation tax through their online system.

    Additional Information

    Profit bands for SMEs

    Profit band Tax rate Notes
    Under £50,000 19% Small profits rate
    Over £250,000 25% 25% tax rate
    Between £50,000 and £250,000 26.50% Effective rate of 26.5%

     

    If your company earns between £50,000 and £250,000, you will pay some of the profits at the 19% rate, and others at the 25% rate, resulting in a total effective tax rate of 26.5%.

    Marginal relief

    If your company is eligible for marginal relief (UK resident companies only), then each £1 of profit is taxed at an effective rate of 26.5%.

    Large enterprise companies

    There are different parameters for large enterprise companies:

    • £1.5 million: If your company earns more than £1.5 million a year, you must pay the corporation tax in instalments.
    • £20 million: Large companies must pay tax in quarterly instalment payments (QIPs) across the year. The payment dates are the day 14 of months 7 and 10 of the accounting period, and day 14 of months 1 and 4 for the succeeding period.

    Who Pays Corporation Tax?

    The following businesses may have to pay corporation tax:

    1. Limited Companies: This includes private limited companies (Ltds) and public limited companies (PLCs).
    2. Clubs, Societies and Associations: Members of clubs and societies such as sports clubs, social clubs and other businesses that are run to benefit their members.
    3. Trade Associations: Companies that represent the interests of a particular trade or profession such as trade and professional associations.
    4. Co-operatives: Organisations such as housing co-operatives and credit unions.
    5. Landlords & Housing Associations: Non-profit organisations that provide affordable housing, but only when they are in receipt of taxable income, or if they’re requested to do so by HMRC.
    6. Charity Companies: Some charities are exempt, but if the company engages in non-charitable trading income, it is subject to tax.
    7. Unincorporated Associations: Unincorporated bodies such as groups who run a business together without forming a company (community groups, clubs etc) are subject to corporation tax if they make taxable income.
    8. Foreign Companies: If a company has a branch or permanent establishment in the UK, it must pay corporation tax on profits earned within that region.
    9. Members of Lloyd’s: Corporate entities participating in the Lloyd’s insurance market.

    When Do You Not Pay Corporation Tax?

    There are a few reasons why a small business could be exempt from corporate tax, such as if your company:

    • Doesn’t make taxable profits
    • Is solely for charitable purposes
    • Is Dormant

    But if your company is actively trading and making profits, it must pay corporation tax.

    This includes most SMEs, even with tax reliefs and allowances applied. It is very rare that a company would be able to avoid tax payments altogether.

    Reducing your Tax Payments

    You can lower your corporation tax by including all annual business expenses and all relevant deductions. This can be a big undertaking, which is made much easier if you consult an accountant.

    Make Corporation Taxes Easy with Expert Accounting Services

    Knowing your tax obligations and planning accordingly is vital for staying compliant with regulations and making business run smoothly. But with an infrastructure in place that uses modern methods such as Cloud Accounting, and the support of experienced accountants such as us at Mollan & Co, you can streamline tax processes, guarantee accuracy, and grow as a business.

    Streamlining processes such as taxes can free you up to focus on business growth and sustainability.

    Get in touch today to book your free, no-obligation consultation

    Author Profile
    Owner and Managing Director at Mollan & Co

    I'm the owner and Managing Director of Mollan & Co Accountants. I'm a skilled and efficient accountant with more than 20 years of experience in the industry.

    I developed valuable skills in commercialisation through my work in the science and technology department at the Scottish University. Then, in 2002, I formed my own internet-based marketing company, producing and distributing 360° virtual reality tours for the Scottish tourism sector.

    I now use my commercial skills, expert tax knowledge and first-hand experience to help other businesses grow and flourish through strong accounting practice.

    Our success at Mollan & Co is directly related to the success of our clients.