If you are a limited company contractor, your company will be liable to pay Corporation Tax on any profits each year.
Currently, all companies are taxed at the same 19% rate (2020/21 tax year). In previous years, small firms were taxed at a separate ‘small profits rate’ from larger firms, however, the rates were equalised in 2016.
If you have hired an accountant, they will most likely deal with all affairs related to HMRC and your Corporation Tax requirements, however, limited company directors are still responsible for ensuring that they register their companies for corporate tax, and settle their annual liabilities accurately, and on time.
Here is a summary of the corporation tax registration process. Whether or not you decide to register yourself, or via your accountant, is up to you. In either case, there are a few administrative steps you need to make to complete the process.
How to register to pay corporation tax
Once you have formed a limited company, Companies House will inform HMRC of your company’s existence.
Within a few weeks of incorporating, HMRC will send you an introductory pack to the company’s registered address, which will include your company’s Unique Taxpayer Reference (UTR), and supplementary information on how corporation tax works and how it applies to your new company.
You should complete the enclosed form CT41G (which contains details on your new company), and return this to HMRC. Even if you don’t receive the registration form, you must still inform HMRC within three months of starting business operations.
If you have not yet started trading, just complete the dormant company insert in the same form.
If you use the web incorporation service to form a new company which has already started trading, you can actually complete the Corporation Tax registration process at the same time as the incorporation process by answering 6 additional questions at the end of the application to form a new company.
In reality, most contractors will use an accountant to take care of their limited company tax affairs. Your ‘agent’ will act on your behalf and file your annual corporation tax return. Once you have chosen a suitable company name, your contractor accountant will form the company on your behalf, and register your company to pay a number of taxes, including Value Added Tax (VAT), PAYE (your company payroll) and National Insurance.