Businesses/organisation in the United Kingdom must pay Corporation Tax on earnings from doing business as any of the below mentioned:
- Any overseas company with a United Kingdom office or branch
- A limited company
- A co-operative, club, or other self-governing association, for example a sports club or a community group – an ‘unincorporated or self-governing association’ is an administration set up with agreement between a set of individuals who come together for a motive other than to earn profit. Here, individuals are themselves accountable for any contractual obligations or debts
Few things each organisation must do with regards to Corporation tax include the following:
- When an individual restarts a dormant business or starts doing a new business, register for Corporation Tax
- The business must keep accounting records and structure a Company Tax Return to compute the amount of Corporation Tax due
- Regularly pay pay Corporation Tax Corporation Tax or update in case there is nothing to be paid by the tax deadline – tax deadline is typically 9 months and one day post the end of ‘accounting period’
UK Corporation Tax
Companies which are resident in the United Kingdom are taxable on their global income (subject to an opt-out for non-United Kingdom permanent establishments [PEs]). If the company is not based in the United Kingdom, however, has a branch or office in the UK, then it is only liable to pay Corporation Tax on earnings from its United Kingdom activities. Taxable profits for Corporation Tax comprises the money an organisation or association earns from:
- Doing business or performing business activities and earning ‘trading profits’
- Investments made around the business
- Selling assets for a price in excess of their cost (‘chargeable gains’)
Broad corporation tax rates
Starting 1-Apr-18, the typical corporation tax rate is 19% and it is recommended that the corporation tax rate will decrease to 17% starting 1-Apr-20. Where the taxable profits can be accredited to the exploitation of patents, a decreased effective tax rate is applied – for this, the rate is 10% from 1-Apr-17. Profits can comprise a substantial portion of the transaction profit from the sale of products that comprises a patent, not just earnings from patent royalties. This system was reviewed from June 2016.
Special corporation tax regimes
Apart from the four exact exclusions (Oil and gas company regime, Life insurance company regime, Tonnage Tax regime, Banking sector), there are no distinctive systems for specific size or types of business action. In a broad-spectrum, all corporations in various sectors are liable to a similar corporation tax rates. However, some relief and treatment may vary depending on the size of the business, research and development (R&D) credits, and some specific anti-avoidance rules. For large organisations, there are certain extra reporting and compliance requirements. Certain elements of Her Majesty’s Revenue and Customs’ (HMRC’s) executive structure and method to evasion and compliance are decided by size of business
Charities are, in general, exempt from giving corporation tax, nevertheless they have to compute and submit corporation tax returns if they have:
- Any taxable gains or income which are not covered by an exemption or relief
- Been sent a notice to file a corporation tax return
A Corporation tax return comprises a set of the charity’s accounts and a calculation of the tax due, as well as the return form. For any charity to file a Corporation tax return through the HMRC online filing, it will be required to provide details of their gift aid registration number onto the form. In case the charity does not have a gift aid registration number, it will have to apply for it so that it does not postpone filing of the corporation tax return after the filing deadline. Delay in filing could result in incurring a penalty. In order to file a return, it is imperative for charities to have this number whether they ever need to claim gift aid or not.
Charities concluding corporation tax returns need to keep in mind that they have to complete all sections of the form. Form CT600E, which is of specific significance to charities must be downloaded and finished along with the main return. Charities need to file the Corporation tax return even if might show zero all the way through, even though where total exemption is being requested and there is no obligation for tax. In case all sections of the form are not completed, it may be disallowed and the charity could suffer a late filing penalty. Charities must consult auditors or accountants and seek their guidance if they need additional help.
Tax treatment of amount received by the United Kingdom holding company from its subsidiaries
Dividends received by the United Kingdom holding company from any other United Kingdom company or from foreign companies should be able to take advantage of a dividend exemption from corporation tax. If accessible, this implies that the United Kingdom holding company will not be required to pay corporation tax on the dividend amount received. The size of the company will define whether the United Kingdom holding company will be able to get the benefit of dividend exemption. Normally, a company will be defined as a small business if it has less than 50 employees and its twelve-monthly income is less than €10mn. In case there are any associated businesses, such as affiliates of the holding company, their balance sheet, turnover, and employees will need to be combined to that of the United Kingdom holding company for this purpose. In case the holding enterprise is a small enterprise then the dividend immunity should preclude United Kingdom tax being billed with relation to dividends paid to it by United Kingdom enterprises or enterprises located in places where the United Kingdom has a double tax treaty.
General enquiries: Corporation Tax
Businesses in the United Kingdom can contact HMRC for seek assistance with all-purpose Corporation Tax enquiries. An individual will be required to provide their 10-digit Unique Tax Reference number (this can be found on the letters received from HMRC)
- Telephone number within the United Kingdom: 0300-200-3410
- Telephone number outside the United Kingdom: +44 151 268 0571
- Fax number: 03000 543 889
HMRC helpline is available from Monday to Friday during 8 AM to 6 PM. The helpline is closed on weekends and the best time to contact is between 8 AM to 9 AM and 5 PM to 6 PM.
HMRC can also be contacted via Post. The address is as follows:
Corporation Tax Services
HM Revenue and Customs