Corporation Tax

The Corporation Tax Main Rate applies to companies with profits in excess of £250,000. The applicable rate is currently 25%. A Small Profit Rate (SPR) of 19% applies to companies with profits of up to £50,000.

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 your profits by the main rate of 25% and deducting marginal relief. For the current 2024 fiscal year, the marginal relief fraction is 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

It is important that anyone responsible for the accounts and tax filing regime for private limited companies is aware of their obligations.

After the end of its financial year, a private limited company must prepare full annual accounts and a company tax return. The deadline for filing the first set of accounts with Companies House is 21 months after the date the company was registered with Companies House. Annual accounts must be submitted 9 months after the company’s financial year ends.

There is a fixed date for the payment of Corporation Tax which is 9 months and 1 day after the end of the relevant accounting period. Note that a company is usually required to pay the tax due in advance of the filing deadline for a company tax return.

In most cases a company’s tax return must be submitted within 12 months from the end of their accounting period. Online Corporation Tax filing is compulsory for company tax returns. Company tax returns have to be filed using the iXBRL data standard using either HMRC’s own software or third-party commercial software.

The accounting period for Corporation Tax is normally the same twelve months as the company financial year covered by the annual accounts. Note that there are penalties for late filing with Companies House and HMRC.

Full expensing allows for a 100% first-year capital allowance for qualifying plant and machinery assets and 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.

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

Tax relief may be available for post-cessation expenses of a trade. To be an allowable post-cessation expense the trade must have ceased and the expense must have been deductible in calculating the trading profits.

This means that the expense still has to meet the wholly and exclusively test and be revenue, not capital, expenditure. The expenditure can be apportioned if necessary. The way in which post-cessation expenses can be relieved depends on the person incurring the expenditure and the type of expenditure involved.

The following are examples of expenses that would likely be categorised as post-cessation expenses:

• remedying defective work done, goods supplied, or services rendered while the business was continuing or as damages in respect of such defective work, goods or services whether awarded by a Court or agreed during negotiations on a claim;
• paying legal or other professional expenses incurred in connection with the costs above;
• insuring against liabilities arising out of any such claim or against the incurring of such expenses; and
• collecting, or seeking to collect, debts which were taken into account in computing the profits of the trade before discontinuance.

An expense specifically relating to the cessation itself is not an allowable deduction for tax purposes.

In the Autumn Statement last year, it was announced that the existing R&D Expenditure Credit and Small and Medium Enterprise Scheme would be merged from April 2024. The merged scheme R&D expenditure credit (RDEC) and enhanced R&D intensive support (ERIS) became effective for accounting periods beginning on or after 1 April 2024. The expenditure rules for both are the same, but the calculation is different.

The merged RDEC scheme is a taxable expenditure credit and can be claimed by eligible trading companies within the charge to UK Corporation Tax. You can choose to claim under the merged scheme instead even if you are eligible for the ERIS, but you cannot claim under both schemes for the same expenditure.

The calculation and the payment steps of the merged scheme RDEC are broadly the same as the old RDEC scheme, however:

• a lower rate of notional tax restriction is available to small profit-makers and loss-makers; and
• a more generous PAYE cap applies.

The merged RDEC scheme is liable to Corporation Tax as it is deemed to be trading income.

The ERIS scheme allows loss-making R&D intensive SMEs to:

• deduct an extra 86% of their qualifying costs (additional deduction) in calculating their adjusted trading loss, as well as the 100% deduction which already appears in the accounts, to make a total of 186% deduction; and
• claim a payable tax credit, which is not liable to tax, and which is worth up to 14.5% of the surrendered loss.

The changes in the rules are complex and advice should be sought to ensure that any R&D spend remains qualifying. There have also been significant changes to the restrictions for expenditure on overseas R&D activities which are now generally restricted.

HMRC has the power to make directors personally liable for paying the tax debts of companies they have been involved in under certain limited circumstances. This can also apply to certain other individuals associated with a company.

A joint and several liability notice tells the recipient that they are personally responsible, along with the company and anyone else issued with a notice, to pay the penalty amount raised against the company.

There are a number of important conditions that must be met before HMRC can issue a notice. The underlying legislation applies to liabilities relating to any period that ended on or after 22 July 2020. 

Directors could receive a joint and several liability notice in cases of:

• tax avoidance and tax evasion;
• repeated insolvency and non-payment cases; and
• facilitating avoidance or evasion, for example, helping others to avoid or evade paying tax due.

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.