UK : How does Corporation Tax work for private limited companies ?
After helping you choosing the right business structure and setting up as a sole trader or a private limited company, we are going to take a deeper look at the documents you’ll need to file with Companies House and HM Revenues and Customs (HMRC), especially your annual accounts and your Company Tax return so you know everything about your Corporation Tax !
What are the documents I have to file ?
Once you’ve set up your private limited company, you will have to prepare two documents at the end of each of your company’s financial year :
- your statutory annual accounts : you must file them with Companies House 9 months after the end of your company’s financial year
- your Company Tax Return : you must file it with HM Revenue and Customs (HMRC) 12 months after your accounting period for Corporation Tax ends.
Note that if your private limited company doesn’t need an auditor, you can file both documents together. See if your private limited company can get an audit exemption.
Also, you’ll need your company’s annual accounts to file your Company Tax Return so be careful to do this in the correct order !
First accounts and Company Tax Returns
For your first accounts and company tax return, things works a little differently.
The first of your annual accounts are going to be more than 12 months because they start on the day you set up your Company, but ends on the last day of the month your company was set up. This end date is called the accounting reference date and is set by Companies House. So if you set up a private limited company on September 15, 2018, your accounting reference date is going to be September 31, 2019 !
As for your first Company Tax return, it can’t cover more than 12 months, so you’re going to file 2 tax returns to cover the period of your first accounts. It means you will have two deadlines to pay what you owe.
Below are the Company Tax rates from 2016 to 2019 to help you work out how much your Corporation Tax bill will be !
Corporation tax rates by year from 2016 to 2019 (Source)
What information must appear in my annual accounts ?
- balance sheet signed by a director and with his name printed on it
shows the value of what the company owns, owes, and is owed on the last day of the financial year
- profit and loss account
shows the company’s sales, running costs and the profit or loss made over the financial year
- notes about the account
- director’s report
- auditor’s report : depending on the size of your company.
In addition to including all of this information, your statutory accounts must meet International Financial Reporting Standards and New UK Generally Accepted Accounting Practice. We advise you to think all of these things ahead of time, ideally when making your business plan !
The UK government has issued guidance on filing your company’s accounts, don’t forget to take a close look at these.
What is the deadline to pay my Corporation Tax bill ?
You must pay your corporation tax bill to HM Revenues and Customs and the deadline depends on your taxable profits :
- if you made up to £1.5 million on your financial year, the deadline to pay your Corporation Tax is 9 months and 1 day after the end of your accounting period, which is usually your financial year.
- if you profits exceeds £1.5 million, you’ll be paying your bill in installments. Since this article is designed to help build a new company, we will not explain it here, but you can see the UK government’s guide about it by following this link !
One good thing to know is that if you pay your tax early, HMRC will pay you interest ! In contrast, you’ll be fined if you are late to pay your bill. Be careful too if your due date is on a weekend or a bank holiday, you must make sure you paid HMRC on the last working day before the deadline !
Also, note that you can’t pay your Corporation tax at the Post Office like before, and that depending on the way you choose to pay your bill, it will take more or less time as you can see in the chart below below.
|Same or next day||
|3 working days||
|5 working days||
Time needed by payment method for Corporation Tax (Source)
What are the other things I will have to pay for my private limited company ?
Income tax and National Insurance Contributions (NICs)
If you or your employees receive a salary, you will all will need to pay income tax on any income above £11,500 a year. Employees and limited company directors both pay Class 1 contributions.
The easiest way to do this is to incorporate a PAYE system in order to deduct both income tax and NICs at source.
|Earnings (a week)||Class 1 NICs|
Class 1 National Insurance rate 2018/19 (Source)
Value Added Tax (VAT)
Your company has to register for Value Added Tax if it makes more than £85,000 a year in benefits. When registered, you will collect VAT for HMRC by adding the rate (20% for standard rate) to the bills you give your clients or customers.
Since April 2018, you have to pay tax if you received more than £2,000 on dividends during last financial year. Before that, the limit was £5,000.
As you can see, there are quite a few things to take care of. These things take time and precision to match Companies House and HMRC requirements, so you’d best have these regulatory constraints in mind when establishing your business plan ! Start now with downloading our free business and financial plan template. And come back next week if you want to know more about the obligations of a private limited company’s director or administrator !