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6 Min. Read

How to Pay Corporation Tax?

How to Pay Corporation Tax?

What type of business do you operate? Are you a sole proprietorship or do you operate under a general partnership or joint venture? Maybe you’re a limited liability company that has a separate legal existence.

The point is that no matter the type of business that you are in you will have to pay certain taxes. And those taxes can vary depending on the type of business structure that you have. Some are higher amounts and others are specified for the type of business that you operate.

So what exactly do you need to know? Here’s how to pay corporation tax.

Here’s What We’ll Cover:

What Is a Corporation?

What Businesses Are Required to Pay Corporation Tax?

How to Pay Corporation Tax

Key Takeaways

What Is a Corporation?

With the likes of a sole proprietorship or a partnership, the liability of the business falls directly onto the owner, or owners. With a corporation, it’s a distinct legal identity that’s completely separate from its owners. There are four main features that can usually define a business corporation and its tax liability.

  • If it offers transferable shares
  • If management is centralised under a board structure
  • It has limited liability
  • It operates under a separate legal existence

Just like an individual, a corporation has its own separate specific rights and responsibilities. This means that they can loan or borrow money, enter into contracts and own various assets. However, corporations can also face legal lawsuits and they must pay certain taxes.

And on top of the regular taxes, they must also pay corporation tax. There will be more on the below.

What Businesses Are Required to Pay Corporation Tax?

Every business pays taxes but not everyone will pay corporation business tax. Certain types of corporations must pay corporation tax on profits as the result of doing business. And there can be a different tax rate for federal purposes.

These can include:

  • A limited company
  • Any type of foreign company that has a branch or office in the UK
  • A cooperative, a club or some other type of unincorporated association like a community group

How to Pay Corporation Tax

There is no notification system and you don’t receive a bill to pay your corporation tax. That said, there are some certain things that you need to know. This will help you pay your tax and report it correctly. Plus, you can estimate payments and understand any tax credits.

Here are a few tips to help get you started:

  • When you start doing business or if you restart a business that’s been dormant, register for corporation tax. Any unincorporated businesses need to write to HMRC.
  • Make sure to keep detailed accounting records. This will help you work out how much corporation tax you need to pay when preparing a company tax return.
  • Pay your corporation tax by the deadline or report if you don’t have anything to pay. Typically, this is 9 months and 1 day from the time your accounting period ends.
  • File your company tax return by the deadline. This is most often around 12 months from the time your accounting period ends.

The deadline to pay your corporation tax is going to depend on what your taxable profits are.

For example, if you have a taxable income of up to 1.5 million pounds then you must pay your tax 9 months and 1 day after the end of your accounting period. Each business is different, but most accounting periods are typically your financial year. But some businesses could have more than one taxable period depending on how the company was set up.

On the flip side, if you have taxable profits of over 1.5 million pounds then you must pay your corporation tax in different instalments. For more details on taxable profits that are over 20 million pounds, check the rules and regulations on the HMRC website.

Once you have all your relevant information you must pay your corporation tax by the deadline. If you don’t, HMRC could charge you a late payment penalty. The turnaround time all depends on how you decide to pay your tax. But the good news is that you have more than one option to pay.

For same day or next day:

  • You can pay online or through telephone banking for faster payments. Or through your online bank account.

3 working days:

  • By direct debit payments or an electronic funds transfer if you have set it up before. Or at your bank or building society. You could also pay online by debit or corporate credit card.

5 working days

  • This is if you pay by direct debit and have not set one up before, you just need some general information like your bank routing number and the tax period.

There are a few different timelines depending on how you make official payments or your payment arrangements. An important thing to know is that you cannot pay your corporation tax by post. If your deadline falls on a weekend or bank holiday, be sure to make your electronic filing by your last working day.

What Type of Profits Do You Pay Corporation Tax On?

Basically, any money that your company makes from doing business would get considered taxable profits. This will include doing general business, or your trading profits, and any investments made. It will also include any chargeable gains from selling assets for more than they cost.

There are two main things to consider when determining what type of profits you need to make corporation tax payments on.

  1. If you are based and operate in the UK, then you will pay corporation tax on all your profits from both the UK and abroad.
  2. If you are a foreign corporation but you have a branch or an office in the UK, you only pay corporation tax on profits earned from your UK activities.

Key Takeaways

Some businesses are going to pay some taxes and other businesses are going to pay others. It all depends on the type of business structure you have and the business that you do. But, regardless of what you do, there is no avoiding paying taxes.

There are certain types of businesses that are required to pay corporation tax. They include limited companies or any foreign company that has a branch or office in the UK. Cooperatives, clubs or other associations, such as a community group, are also included.

It’s simple to pay your corporation tax, you just need to be aware of your deadline. And the deadline for payment will depend on your taxable profits. Take a look at the HMRC website to find out which taxable profits bracket your business would fall under.

Once you have the information that you need you just head over to the HMRC website to submit your federal return. The turnaround times will depend on the type of payment. Electronic payments, like through online financial institutions, are the fastest way.

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