What is Corporate Tax Filing, and How to File a Tax Return for a UK Company?

Ryan Patrick

• 5 min read
What is Corporate Tax Filing, and How to File a Tax Return for a UK Company?

Every corporate company in the UK is supposed to pay 19% to 25% Corporation Tax when the company starts making profits. Companies abroad with a UK branch are also required to pay the Corporation Tax on profits made from the UK company's branch. The tax applies to business income generated from investments, sales, and chargeable gains from asset sales.

Every company with taxable income must register with HMRC for filing company tax returns every 12 months. In this blog post, we'll learn how to do this, the penalties, and steps to follow if your business is dormant.

What's Corporation Tax in the UK?

This is a corporate tax on yearly profits by UK-based companies and branches of overseas companies. All limited companies' tax rate is 25%. This amount is paid by companies with profits over £250,000. However, companies with small profits rates of £50,000 or less are required to pay 19%. Companies generating profits between  £50,000- £250,000 may claim a marginal relief. This relief provides a gradual increase in companies' average Corporation Tax rates.

However, the Marginal Relief is unavailable to:

  • Close investments holding businesses
  • Non-UK resident companies
  • If your company has over  £250,000 profit, you can't claim marginal relief, meaning your profits are liable to main rates Corporation Tax.

Who pays this tax? Every UK limited company must pay the Corporation Tax based on annual profits. Additionally, these tax liabilities may extend to unincorporated companies like

  • Members Clubs
  • Members Associations
  • Co-operatives
  • Trade associations
  • Housing associations

What Type of Company Pays Corporation Tax?

Your company must pay the Corporation Tax if it carries any business or generates any income. Examples of liable businesses include:

  • Paying dividends
  • Buying and selling of items or services
  • Selling assets
  • Buying or leasing properties
  • Managing investments
  • Earning interest
  • Paying employees
  • Receiving income from any source

But if your company isn't involved in any of the activities mentioned above, it is classified as inactive or dormant for Corporation Tax. Remember to contact HMRC to report your business's dormant trading status.

How to Register your Business for Corporation Tax

You must register with HMRC for the Corporation Tax within three months of starting your business. To register your business as active for Corporation Tax, you must create a Government Gateway user ID by signing up for HMRC online services. To sign up, you're required to provide these details:

  • Company name
  • Company registration number - In case you don't know where to find it, check it on a certificate of incorporation.
  • Unique taxpayer reference -HMRC sends you this after your company formation
  • Trading main address-this is where you carry out your business activities
  • The trading activity start date is crucial in determining your business accounting period for Corporation Tax. It takes 12 months to make up a financial year
  • Principal business activity - you must get a standard industrial classification code to identify your business activities
  • Accounting reference date - this is the date you form annual accounts, which fall on the last day of the month of your company formation

After you complete registration, HMRC sends the information to your business registered office. The information will include deadlines for Corporation Tax payment and company tax return filing deadlines.

Is it Mandatory for a Company to File a Company Tax Return?

As long as your business is active for part or its entire Corporation Tax accounting time, you must prepare the Company Tax Return and annual accounts for the HMRC. You must deliver these at the end of the accounting period (12 months). Remember to do this even if you made a loss, or you don't have any Corporation Tax to pay.

The accounting period starts when your company becomes active for Corporation Tax; this date may differ from the day your company was incorporated at the Companies House. Every accounting period runs for 12 months and ends on the accounting reference date of your annual accounts. However, if a tour business has been dormant since the incorporation date of its Corporation Tax accounting period, don't deliver accounts or company tax returns to the HMRC.

What is a Company Accounting Period for Corporation Tax?

The accounting period for Corporation Tax starts on the day your company starts trading. In most cases, it is the company formation date, unless the business was dormant for a certain period after the incorporation. On the other hand, the accounting period ends on an accounting reference date, which marks the end of the business financial year. The accounting reference date falls on the last day of the month your business was registered at the Companies House.

A company's Corporation Tax period is mainly 12 months, corresponding with its business annual accounts' financial year. Although the accounting periods can be shorter than 12 months, they can't be longer than 12 months. If you start trading immediately after company incorporation, this first financial year can be longer than 12 months. In such scenarios, you must prepare two accounting periods, namely:

  • For 12 months, the annual account
  • Tax return for additional days in the accounts

You must pay all tax liabilities from every business activity you carry during the accounting period. Remember to record financial activities and business transactions in accounting records. This will help prepare the Company Tax Return and calculate your tax.

For example:

  • If a company was formed on 1 January 2024, and you start to trade immediately:
  • Your company's financial year begins on 1 January 2024 and ends on 31 January 2025. This first annual account will cover 13 months
  • Your business will have two Corporation Tax accounting periods, and you will file two Company Tax Returns
  • One will cover the first 12 months period from 1 January to 31 December 2024
  • The second return will cover from 1 January to 31 January 2025

After that, your company's accounting period must align the annual accounts for the financial year, which begins 1 February 2025 and ends 31 January 2026. Your company will file the annual accounts tax return every 12 months.

Late filings of Corporation Tax Penalties

If you fail to return tax and full accounts by the filing deadline, you must pay a flat rate £100 penalty, and there's a further £100 penalty if you fail to return within three months. Failure to pay within three months will result in a penalty of £500. If you file a company tax return late for over three consecutive accounting periods, this flat rate penalty rises to £500.

If you file a tax between 18 and 24 months late, you incur a 10% fine for the unpaid tax liability. Moreover, if you have due Corporation Tax that exceeds 24 months, you will be fined an additional 10% fee on the outstanding Corporation Tax liability.

The outstanding tax amount determines the penalty of Corporation Tax late payment. This is also called a potential lost revenue (PLR), which may vary from 30% to 100% of outstanding tax liability; however, if you have a reasonable excuse, the HMRC will consider your company.

Winding up

Adhering to UK corporate tax regulations is imperative for both domestic and foreign companies operating within the country. From registering with HMRC to determining the appropriate tax rates and filing timely returns, businesses must go through a structured process. You should understand your company's accounting periods and timely meet the deadlines to avoid penalties and ensure the financial health and reputation of the company. Whether actively engaged in business activities or dormant, compliance with company tax return requirements is mandatory. Do you have questions about company incorporation or need more clarity on corporate tax? Reach out to Incorpuk today.