Corporation tax is only applicable to net profits generated by limited companies; sole traders and partnerships pay income tax. By law, a company not only has to file its corporation tax return with HM Revenue and Customs, it also has to work out how much it has to pay – HM Revenue and Customs will not work this out for you!
Every year the Government sets the rate for corporation tax. For the financial year 20011 the rate is:
- Small profit rate - 20%
- Small Profits Rate can be claimed
by qualifying companies with profits at a rate not exceeding £300k
- 26% for profits £1,500,001 upwards
- Marginal relief in between these figures.
Note: Between each band there is ‘marginal relief’, which eases the transition from moving from one tax band to another.
A limited company must file its tax return within 12 months of the end of its financial year, otherwise it is liable to penalties.
The financial year for corporation tax purposes starts on 01 April- and it is always recommended that an accountant is used.