VR & AR Guide 6: Corporation Tax

Introduction

A UK Limited company pays corporation tax on its taxable profits for the accounting period. Corporation tax is due 9 months and 1 day after the accounting period end. For example, a company with a 31 March year end, would be required to pay any tax due by the following 1 January. However, the company tax return is due 12 months after the accounting period end.

The corporation tax rate for 2020/21 is 19%. It is currently proposed that the rate will increase to 25% from April 2023.

Important points to consider

Accounting profits vs taxable profits:

Profits taxable for corporation tax are often different to profits appearing in the company accounts and this can be for a number of reasons such as:

• Not all business expenses are allowable for tax purposes e.g. client entertaining or depreciation; and must beadded back into the profits for tax purposes.
• Capital additions, which are depreciated in the accounts, attract different rates of allowances for taxpurposes. For example, if you buy a computer, the cost might be written off in the accounts over 3 years, butfor tax purposes, you are likely to obtain full relief in the year of purchase
• Taxable profits can be reduced by way of Patent Box Relief, Research & Development (R&D) Tax Relief and Video Games Tax Relief claims.

Tax losses:

• If a company has made a taxable loss for the accounting period, these losses can be carried forward andoffset against future profits of the same trade.
• If the company had a corporation tax liability in the previous period, the losses for the current accountingperiod can be carried back, enabling you to claim a corporation tax refund.
• Losses created by R&D or Video Games Tax Relief claims, can be surrendered for repayable tax credits.

Tax planning:

The corporation tax liability can be manipulated through effective, legitimate pre year-end planning including bringing forward planned expenditure or extra pension contributions.

Disclaimer: This leaflet is intended for guidance purposes only and we recommend that you take specific advice before taking any action or relying on these notes. Plus Accounting is a trading name of Feist Hedgethorne Limited. Registered to carry out Audit work in the UK and regulated for a range of investment business activities by the Institute of Chartered Accountants in England & Wales.

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