If you want to start a new business as a limited company contractor, your company will pay Corporation Tax (CT) on its annual profits.
Your company will assess its annual Corporation Tax liability and pay any tax owed to HMRC.
You will be penalised if you submit your CT return late, or if it contains errors.
Unsurprisingly, the vast majority of contractors entrust their company tax affairs to specialist contractor accountants.
Use this guide to know the basics of what you need to do, when and how.
Plus, scroll down to work out how the April 2023 CT rate hike will affect your company.
Register your new business
When you incorporate a new company, you must inform HMRC that the company has been set up, and will be liable to pay Corporation Tax on its profits.
You must inform HMRC within 3 months of commencing your business activities for CT purposes.
In most cases, you will also appoint an accountant to take care of your tax affairs, and you will also need to ‘authorise your agent’ to act on your behalf.
Your accountant will be able to take care of the registration process on your behalf, as well as other matters such as registering your company for VAT and setting up a payroll.
You can find out more about registering your company for corporation tax.
Self-assess your business
Each year, your company should receive a notice from HMRC to file a company tax return. Even though your accountant will be doing the calculations, it is ultimately your responsibility to ensure it is filed correctly and on time.
Your accountant will also submit your company’s corporation tax return (CT600).
How do accounting periods work?
All limited companies are self-assessed over pre-defined periods, typically 12 months in length unless your accountant has made changes to your reference dates.
Your accountant can change an accounting period to one of less than 12 months, but not longer.
Your company must make pay any Corporation Tax liabilities within 9 months and one day following its ‘normal due date’, which will typically be the final day of your annual accounting period.
Company tax return details
All company tax returns will contain the name of your company and company registration number, the registered office address and tax reference number.
Corporation Tax rates from April 2023
Despite various u-turns by the Government during late 2022, the pre-planned rise in CT rates will commence in April 2023.
A new main rate of CT of 25% will apply to annual profits of £250,000 or more.
However, the 19% rate will still apply if your annual profits are £50,000 or less.
A system of tapered relief will apply to profits which fall between the two thresholds. This means that there is an effective rate of 26.5% on profits between £50,000 and £250,000.
Keeping accurate records
All companies must keep all their financial and tax records for at least 6 years – this includes all invoices, expenses, receipts, etc.
HMRC states that you can scan these documents as a ‘legible alternative’ to keeping paper copies.
With most contractors using online accounting systems these days, most records can now be stored safely in the cloud.
Deadlines and Corporation Tax penalties
Your company must submit its annual tax return by the statutory filing date deadline, which is usually 12 months following the end of your accounting period.
If your CT return is delivered late or contains inaccuracies, you could be charged a penalty. Even if your accountant is at fault, the buck stops with the company’s directors, so make sure you understand the figures.
As mentioned earlier, you must also pay any tax liabilities within 9 months and one day of your accounting period end date.
Remember to get professional advice from a qualified person (your accountant) before taking any action. Don’t rely purely on the information contained in this article.