It is important to know your company ‘accounting period‘ for Corporation Tax.
You will pay your Corporation Tax bill at the rates that applied to those set periods of trading.
But, you may be able to apply deductions or claim tax credits against the amount of Corporation Tax you owe.
These types of deductions are also called allowances and reliefs (see below).
Note: Different Corporate Tax rates apply to the profits of ‘ring fence companies‘ (e.g. involved in oil rights or extraction in the UK).
Corporate Tax Rates before 1 April 2016
The size of company profits determines the corporate rate to pay from before the 1st of April 2016. You work out your profits when preparing accounts and tax returns for a limited company.
Were your profits between £300,000 and £1.5 million before the 1st of April 2015? If so, you may claim Marginal Relief as a way of reducing your Corporation Tax bill.
Accounting Period Shorter than 12 Months
The small profits rate and the main rate are for a complete year. In fact, the thresholds would reduce in line with an accounting period.
So, an accounting period of six (6) months would reduce a £300,000 small profits threshold in half to £150,000.
According to the rules of Corporation Tax one company is associated with another company if (either rule applies):
- One of the companies controls the other one.
- The same companies or people control both companies.
If this is the case, it would mean that they have a shared tax threshold. So, you would divide the threshold by four (4) if one company owns three (3) others, for example. The small profits threshold would become £75,000 for each of the companies.
More than One Rate Applies in Accounting Period
In this case, you would work out how many days each rate applied, then calculate the tax due for each of them.
Corporation Tax Allowances and Reliefs
You will be able to deduct the costs of running the business from the profits before tax. This is part of the process where you prepare your company accounts.
But, if there is anything that you or your employees make personal use of (e.g. a computer) you must treat it as expenses and benefits for employers.
Note: You cannot claim all expenses for Corporation Tax purposes (e.g. entertaining a client). Some would need adding back to the profits when you prepare a Company Tax Return.
Claiming Capital Allowances
You would be able to claim capital allowances on assets bought to keep for use in the business. Typical examples of claimable assets include:
- Business vehicles (e.g. company cars, lorries, vans)
Other Corporate Tax Reliefs
In certain circumstances you might be able to make a claim or election for:
- Disincorporation Relief if you will close your company and become a sole trader, ordinary business partnership, or a limited partnership.
- Corporation Tax creative industry tax reliefs (CITR) if your company makes a profit from film, theatre, television, animation or video games.
- Research and Development (R&D) Relief.
- Terminal, capital and property, income losses.
- The Patent Box if your company makes a profit from patented inventions and certain other innovations.
- Trading losses.
Claiming Marginal Relief
There are some restrictions if you are going to claim Marginal Relief. The trading company must have had profits between £300,000 and £1.5 million that were either from before 1st of April 2015 or from oil rights or extraction in the UK or the UK continental shelf.
The Marginal Relief calculator can help you work out how much Marginal Relief you can claim on your Corporation Tax bill. As a rule, the company profits must be between £300,000 and £1.5 million.