Do you own a limited liability enterprise? If so, you'll need to understand corporation tax to know if you’re paying the correct amount. As the name implies, corporation tax is the primary tax paid by UK limited firms. It is levied on a company's earnings (minus its operational expenditures) and is a significant source of revenue for the UK government.

In fact, corporation tax collections totalled £55.1 billion in 2018–2019. This money is used for healthcare, transportation infrastructure, law enforcement, and education.

No one, however, wants to pay more tax than necessary—and this article will teach you all you need to know. This includes how much corporate tax you must pay, when you must pay, and how you pay.

Understanding Corporation Tax

Overall, corporate tax receipts in the United Kingdom account for around 9% of overall tax receipts received by HMRC. It is based on yearly income, but you can deduct any expenditures made to run your firm, such as salaries and investments.

If your business is a UK limited company, you are eligible to pay corporation tax. Limited businesses are a type of organisation that has limited liability. A limited corporation is a legal entity in and of itself. 

A private limited corporation has one or more members, often known as shareholders or owners, who purchase shares in the firm through private sales. Directors are firm personnel responsible for all administrative duties and tax filings but are not required to be shareholders.

The company's finances are distinct from the owners' and are taxed accordingly. All earnings are owned by the corporation, which pays taxes on them, distributes a portion to shareholders as dividends, and keeps the remainder as working capital. A director may only withdraw cash to pay their salary, dividends, or make a loan.

Who Is Eligible to Pay for Corporation Tax?

All UK limited enterprises must pay corporation tax. Ltd. is a common acronym for "limited," a type of corporate structure accessible in nations like the United Kingdom, Ireland, and Canada. 

The suffix occurs after the company name, signifying that it is a private limited company. The liability of shareholders in a limited company is limited to the capital they originally invested. If such a firm fails, the shareholders' personal assets are secured.

Corporation tax also applies to organisations headquartered in other countries but operating in the UK—these firms must only pay tax on their UK profits.

On the other hand, if your firm is based in the UK but works in numerous countries, you must pay tax on all earnings made (not just UK activities).

How Much Do You Need to Pay?

Every corporation subject to corporate tax pays a set rate of 19%. This rate has been constant since April 2016, while it previously changed based on the amount of profit earned by the firm. 

How Do You Pay?

Within three months of launching a firm, you must register for corporation tax. You may do this online, but you must first register for a government gateway login. Begin by following the instructions on the official government page. It helps to have an accountant to help you with this process.

However, determining when you begin to “conduct business” is more complicated, and HMRC offers detailed information on what counts as a trade for tax reasons.

After completing this, HMRC will notify you of your corporation tax deadline. Unlike income tax, you will not get a company tax statement detailing the amount you owe. Instead, you must file a Company Tax Return.

Conclusion

As the name implies, corporation tax is the primary tax paid by UK limited firms. It is levied on a company's earnings (minus its operational expenditures) and is a significant source of revenue for the UK government.

Make sure to process your corporation tax accordingly to avoid sanctions and fines. If you are unsure about this process, you can hire accountancy services for businesses to help ensure you are paying the right amount.

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