Understanding corporation tax is essential for any limited company director or business owner. This guide explains key concepts and planning strategies to manage your tax liability efficiently.
Corporation Tax Rates
The UK operates a tiered corporation tax system with different rates depending on profit levels. Companies may also benefit from marginal relief in certain profit bands.
Current rates, thresholds, and detailed information are available at GOV.UK Corporation Tax.
Associated Companies
If you control multiple companies, profit thresholds are divided by the number of associated companies. Companies are associated if one controls the other, or both are under common control by directors, shareholders, or related parties.
This can significantly affect your effective tax rate, so it's important to understand the rules.
Planning Strategies
1. Profit Extraction Timing
Carefully consider the timing of profit extraction, balancing salary versus dividends, pension contributions, and timing of major expenses.
2. Capital Allowances
Maximise tax relief through capital allowances on qualifying business assets. Various schemes exist including Annual Investment Allowance and full expensing on plant and machinery. See HMRC Capital Allowances guidance for current rates.
3. Research & Development
Claim R&D tax relief through the SME scheme or RDEC scheme. This reduces taxable profits, with cash credits available for loss-making companies.
4. Directors' Remuneration
Optimise your salary and dividend mix. Salary is corporation tax deductible but subject to income tax and NI, whilst building state pension entitlement. Dividends are paid from after-tax profits with lower personal tax rates and no NI contributions.
5. Pension Contributions
Company pension contributions are corporation tax deductible with no income tax or NI for the recipient, provided they're wholly and exclusively for business purposes and proportionate to services provided.
Group Planning
Group relief allows transfer of losses between group companies (75% ownership threshold), offsetting losses against other members' profits to reduce overall group tax liability.
Compliance Requirements
Filing and Payment
- Submit company tax return (CT600) within 12 months of accounting period end
- Standard payment deadline: 9 months and 1 day after period end
- Large companies may need quarterly instalments
Record Keeping
Keep records for at least 6 years, including invoices, receipts, bank statements, contracts, and payroll records.
Penalties
Late filing and payment attract penalties and interest. Initial late filing penalty starts at £100, increasing with delay.
Common Mistakes
- Forgetting about associated companies
- Missing capital allowances claims
- Poor timing of expenditure
- Inadequate record-keeping
- Late filing or payment
How We Can Help
Optima Accountancy provides comprehensive corporation tax services:
- Tax planning and strategy
- Corporation tax return preparation
- Capital allowances claims
- R&D tax credit claims
- Associated company reviews
- Optimising director remuneration
- Group relief planning
Contact us for a free corporation tax review and personalised advice on minimising your tax liability legally and efficiently.