Corporation Tax

HMRC must be informed when a non-trading or dormant company starts trading and becomes active for Corporation Tax purposes. Companies can use HMRC Online Services to supply the relevant information. 

When a company has previously traded and then stops it would normally be considered as dormant. A company can stay dormant indefinitely, however, there are costs associated with doing this and certain filings must still be made to Companies House. The costs of restarting a dormant company are typically less than starting from scratch again. 

The following steps are required:

1. Tell HMRC that your business has restarted trading by registering for Corporation Tax again.
2. Send accounts to Companies House within 9 months of your company’s year end.
3. Pay any Corporation Tax due within 9 months and 1 day of your company’s year end.
4. Send a Company Tax Return – including full statutory accounts – to HMRC within 12 months of your company’s year end.

Whilst reporting dates for annual returns and accounts should remain the same. The Corporation Tax accounting period is different and is set by reference to the date when the company restarts business activities.

A reminder to readers that the full expensing 100% first-year capital allowance for qualifying plant and machinery assets came into effect last April. To qualify for full expensing, expenditure must be incurred on the provision of “main rate” plant or machinery. Full expensing is only available to companies subject to Corporation Tax.

Plant and machinery that may qualify for full expensing includes (but is not limited to):

• machines such as computers, printers, lathes and planers;
• office equipment such as desks and chairs;
• vehicles such as vans, lorries and tractors (but not cars);
• warehousing equipment such as forklift trucks, pallet trucks, shelving and stackers;
• tools such as ladders and drills;
• construction equipment such as excavators, compactors, and bulldozers; and
• some fixtures such as kitchen and bathroom fittings and fire alarm systems in non-residential property.

When the full expensing rules were first announced, the relief was set to apply until 31 March 2026. The Autumn Statement 2023 extended this deadline and announced that full expensing would be made permanent. Legislation will be introduced to remove the 2026 end date.

Under full expensing, for every pound a company invests, their taxes will be cut by up to 25p. For “special rate” expenditure, which does not qualify for full expensing, a 50% first-year allowance (FYA) can currently be claimed instead.

Businesses can also continue to use the Annual Investment Allowance (AIA) to claim a 100% tax deduction on qualifying expenditure on plant and machinery of up to £1m per year. This includes unincorporated businesses and most partnerships.

A number of reforms to tax reliefs for the creative sectors came into effect from 1 January 2024. Under the reformed system, a children’s TV production, animated TV production or film with £1 million of qualifying expenditure will receive an additional £42,500 in relief. A high-end TV production, film production or video game will receive £5,000 in relief. The uplift in relief for animation has also been extended to include animated films as well as TV programmes.

The credits will be calculated directly from a production or game’s qualifying expenditure, instead of being an adjustment to the company’s taxable profit.

Animation and children’s TV productions will be eligible for a higher credit rate of 39%, a rate increase of 4.25%. The 34% credit rate for film, high end TV and video games is roughly equivalent to a rate increase of 0.5%.

Productions and games in development on 1 April 2025 may continue to use the previous tax reliefs until they end or until 1 April 2027 to provide companies with additional time to adapt to the new expenditure credits.

In addition, as part of the Spring Budget 2023 measures, the temporary higher rates for Theatre Tax Relief (TTR), Orchestra Tax Relief (OTR) and Museums and Galleries Exhibitions Tax Relief (MGETR) were extended for two further years until 1 April 2025.

The normal filing deadline for filing the accounts of a private limited company is nine months after the company’s financial year end. Known as the accounting reference date. For example, many companies have a year-end date of 31 March and are therefore required to file their accounts by the following 31 December. For public companies, the time limit is 6 months from the year end.

There are automatic late filing penalties if your company accounts are delivered late. The penalties depend on how long has passed from the due date for payment and whether the company is private or public.

It is possible to submit a request for more time to file company accounts. However, you can only apply to extend your accounts deadline if you cannot send your accounts because of an event that’s outside of your control – for example, because of an unexpected illness or if a fire has destroyed company records a few days before your filing deadline. An application must be made before the original filing deadline.

The Corporation Tax main rate for companies with profits in excess of £250,000 increased to 25% on 1 April 2023. A Small Profits Rate (SPR) of 19% was also introduced from the same date for companies with profits of up to £50,000 ensuring these companies continue to pay Corporation Tax at the same rate as was previously the case.

Where a company has profits between £50,000 and £250,000 a marginal rate of Corporation Tax applies that bridges the gap between the lower and upper limits. The lower and upper limits are proportionately reduced for short accounting periods of less than 12 months and where there are associated companies.

The effect of marginal relief is that the effective rate of Corporation Tax gradually increases from 19% where profits exceed £50,000 to 25% where profits are more than £250,000.

The amount of Corporation Tax to pay will be found by multiplying taxable profits by the main rate of 25% and deducting marginal relief. For the fiscal year 2023, the marginal relief fraction will be 3/200. HMRC also has an online calculator that can be used to calculate marginal relief on Corporation Tax profits. The calculator can be found at www.tax.service.gov.uk/marginal-relief-calculator

In the Autumn Statement it was announced that the existing R&D Expenditure Credit and Small and Medium Enterprise Scheme will be merged from April 2024.

It was also confirmed that there will be an enhanced regime for R&D intensive SMEs. The rate at which loss-making companies are taxed within the merged scheme will be reduced from 25% to 19%, and the threshold for additional support for R&D intensive loss-making SMEs will be lowered to 30%.

Loss-making companies claiming the existing SME tax relief will be eligible for a higher payable credit rate of 14.5% if they meet the definition for R&D intensity. This represents an effective tax saving of £27 per £100 spent on qualifying R&D.

The intensity threshold will be reduced to 30% for accounting periods beginning on or after 1 April 2024. A loss-making SME company with qualifying R&D expenditure of 30% or more of its total expenditure will be able to claim the enhanced support for any accounting period beginning on or after that date.

There will be a one-year grace period for companies that fail to meet the R&D intensity threshold due to a qualifying one-off event. This will apply to companies that had successfully claimed enhanced support in the previous year. The one-year grace period will apply to accounting periods beginning on or after 1 April 2024.

After the end of its financial year, a private limited company must prepare full annual accounts and a company tax return. In most cases a company’s tax return must be submitted within 12 months from the end of the accounting period it covers. Online Corporation Tax filing is compulsory for company tax returns. Company tax returns must be submitted using either HMRC’s own software or third-party commercial software approved by HMRC and in the required format.

The accounting period for Corporation Tax is normally the same 12 months as the company financial year covered by the annual accounts. There is a separate fixed date for the payment of Corporation Tax which is 9 months and 1 day after the end of the relevant accounting period. This means that a company is usually required to pay any Corporation Tax due in advance of the filing deadline of a company tax return.

A company has a right to amend its company return within 12 months from the statutory filing date. Examples of when a return may be amended include claims for group relief and elections rebasing for capital gains.

There are penalties for late submission of company tax returns. There is a standard penalty of £100 for a late submission of the return within 3 months of the due date and a £200 penalty if the return is over 3 months late. Companies that submit late returns for 3 or more accounting periods in a row are subject to increased penalties. There are further tax based penalties for companies that do not file a return within 18 months of the end of the relevant accounting period and which have not paid the tax due. These penalties can be either 10% or 20% of the unpaid tax depending on the lateness of the filing.

Company owners with the popular 31 March year end date, will have a Corporation Tax payment date – for the year to 31 March 2023 – that will be due for payment on or before 1 January 2024.

HMRC’s internal manuals provide some useful information on the definition of a business repair. This is important because it is required to identify the asset on which work has been carried out.

This is because:

• the cost of repairing a worn or dilapidated asset is normally an allowable expense;
• the cost of replacing the whole or the ‘entirety’ of an asset is not a repair; it is capital expenditure and not an allowable expense.

HMRC’s guidance goes on to explain that what forms the asset or entirety is a question of fact. It is important to ascertain whether the ‘asset’ is in fact a separate asset or is part of a bigger asset.

The basic starting point is to establish the facts about the specific asset you are considering and then to ask the question; does this look like a separate asset? Is it something that stands apart from other assets, is it freestanding or is it something that is removable? This is a question of fact and degree; there are no ‘tests’ that can be applied.

With buildings and structures, the question is whether the item replaced appears to be a free-standing asset. The fact that it is connected to another structure, for example by a flue, does not make it part of that larger asset.

It also needs to be considered whether something has become part of something else. If something is a ‘fixture’ then it has become part of the building and not an entirety in its own right. 

Companies often have two different company accounting periods. This is because there are different rules for Companies House filings and for returns sent to HMRC.

The accounting periods can be the same but can also differ and a change may need to be made to ‘sync’ the accounting periods. As a general rule the Companies House rules are more flexible and under certain circumstances it is possible to make a change to the year end. The Companies House accounting period can sometimes run for more or less than 12 months.

A tax accounting period for Corporation Tax purpose cannot be longer than 12 months. This can mean that you will need to file two returns to HMRC to accommodate the maximum 12 month rule.

If your accounts cover less than 12 months, then your accounting period will normally end on the same day and will be shorter than 12 months. This can happen if the company stops trading or shortens its company’s year-end also known as its accounting reference date.

Usually, if you sell an asset for less than you paid for it you would make a capital loss. As a general rule, if the asset would have been liable to CGT had a gain taken place, then the loss should be an allowable deduction. 

The exact treatment of losses depends on whether they are:

• losses of the same year of assessment as the gains;
• losses of earlier years of assessment;
• losses of the tax year of death; or
• particular losses which may, exceptionally, be carried back from a later year of assessment.

These deduction of an allowable loss from chargeable gains does not require a claim and does not extend the time limit for enquiring into the original loss claim. Gains accruing in a tax year may be chargeable to CGT at different rates. Therefore, the tax effect of losses and the annual exempt amount set off against those gains can vary.

In most circumstances, allowable losses and the annual exempt amount can be deducted in the way that is most beneficial to the individual. This will usually be against gains that are charged at the highest rate. A claim for losses does not have to be made straight away and can be made up to 4 years after the end of the tax year that the relevant asset was disposed.

Where there remain unused losses that cannot be set against gains of the same year, these losses are carried forward to be set against future gains. It is only possible to utilise losses brought forward if net gains exceed the annual CGT exempt amount for the year.