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Lower corporation tax rate for limited company contractors from April 2011
Posted Feb 9, 2011
HMRC has announced some changes to the way Corporation Tax returns and payments are made from April 2011. The small companies tax rate is also due to be cut from 21% to 20% from 1st April 2011 which will be welcome news to limited company contractors (this was confirmed in Budget 2011).
Online filing and electronic payment
From 1st April 2011, all Corporation Tax returns for periods ending after 31st March 2010 must be filed online - in a specific format (iXBRL).
The vast majority of limited company contractors and freelancers will not be directly affected by this change, as their accountants take care of their corporation tax obligations. More information on online filing and software can be found here.
Corporation Tax liabilities will also have to be made electronically from 1st April. There are many ways of doing this - via direct debit, debit or credit card, and via internet banking.
Corporation Tax Rates
Perhaps of greater interest to contractors will be the 1% drop in the small companies' corporation tax rate from April 1st 2011 to 20%.
Given the gradual erosion of the personal allowance for income over £100,000, and the new 'additional' income tax rate for income over £150,000, this is a rare - and welcome - tax cut for limited company contractors, consultants and other small business owners.
Following a surprise announcement during Budget 2011, the 'main' rate of corporation tax will fall by 2% to 26%, and will fall by a further 1% each tax year until it reaches 23% in 2014-15.
You can find out more about how limited companies are taxed in our guide to Corporation Tax.
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