Outsourcing - Corporation Tax

As a separate legal entity from its owners, a company is liable to HMRC for the payment of tax based on its profits. This tax is called Corporation Tax and is levied on profits of the business which may include income and chargeable gains of sold or disposed assets which are not part of the company’s normal trade. The actual profit is the amount of funds left in the company after the company's expenses and employee's gross salaries have been deducted. Other deductions may come from capital allowances on assets purchased and company losses.

The main rate of corporation tax is 30% for companies with profits exceeding £1.5m; however, there is also a marginal small company relief for profits between £300k and £1.5m, and finally a small company rate at 20% for profits up to £300k. Therefore, those working through PSC’s should only really be concerned with the small company rate at 20%. This will be increased to 21% from 1 April 2008 and 22% from 1 April 2009.

Corporation tax is calculated and submitted to HMRC after the end of every accounting period. This is usually the period when a company’s year end accounts are drawn up and is called the accounting reference date. The maximum an accounting period can be for corporation tax purposes is twelve months, however certain circumstances such as ceasing trading, liquidation etc, can shorten this period.

If the company is active, HMRC should automatically send a Notice to deliver a company tax return every year. In order to calculate how much is due, a company must submit a self assessment Company Tax Return form (CT 600) by the statutory filling date which is twelve months after the end of the accounting period.

The tax is then due for payment nine months after the end of the accounting period and is known as the normal due date. It is important that these dates are known by the directors to avoid penalties and interest charges.

Only after corporation tax is deducted from company profits can any dividend payments be made to shareholders of the company.

See also in this section...

• Contract Review (Legislative Compliance & Risk Assessment) [Read Fact Sheet >>]
• Invoicing, Payment Terms & Credit Control [Read Fact Sheet >>]
• VAT [Read Fact Sheet >>]
• Corporation Tax [Read Fact Sheet >>]
• End of Year Accounts [Read Fact Sheet >>]
• Self Assessment Tax Returns [Read Fact Sheet >>]
• Payroll Calculations [Read Fact Sheet >>]
• Expenses Processing [Read Fact Sheet >>]