Feel you don’t understand Corporation tax? McDade Roberts are here to help. Below is a whistle stop guide to what you need to know.
Up until 31 March 2015 there were two rates of corporation tax. From 1 April 2015 the main rate and the small profits rate have been unified and are set at 20%.
Self assessment
A company has to estimate its own corporation tax liability and pay this by the due date, which is nine months and one day after the end of its accounting period.
A company tax return has to be filed with HM Revenue & Customs within twelve months of the company’s year end.
Interest is charged on late payment of corporation tax, and there are also penalties for late filing of a company tax return.
Tax saving tips:
Expenses
Expenditure incurred before the company year end might reduce the current year’s tax liability instead of next year’s. Bringing forward expenditure by even a few weeks on, for example, building repairs, advertising, sales and marketing campaigns, and any other item deductible from profits can accelerate the tax relief by twelve months.
Plant and equipment
Depreciation is not allowed for tax purposes, but capital allowances are available.
The maximum amount of the annual investment allowance (AIA), attracting 100% relief, was reduced from £500,000 to a new permanent level of £200,000 with effect from 1 January 2016.
Expenditure in plant and machinery (not cars) up to the maximum amount attracts 100% relief. Annual expenditure over these amounts enters either the 8% pool or the 18% pool, attracting a writing down allowance at the appropriate rate.
Any business that invests in energy-saving or environmentally beneficial equipment is entitled to claim a 100% first year allowance. Cars with CO2 emissions of up to 75 g/km also qualify for a 100% first year allowance. Cars with CO2 emissions over 130 g/km will enter the 8% pool. All other cars will enter the 18% pool.
There is a 100% capital allowance for the purchase of new, unused (not second-hand) vans, which cannot produce CO2 engine emissions under any circumstances when driven (eg "electric vans").
Where commercially and financially appropriate, capital expenditure should be brought forward to make the earliest use of the available allowances.
Hire purchase and lease purchase
Hire purchase and lease purchase may provide a useful method of financing the purchase of an asset. Plant and equipment acquired on hire purchase will qualify for capital allowances on the full purchase price, even if the company has paid only the deposit.
Provisions
Specific provisions against bad debts or stock are allowable for tax purposes, but general provisions are not.
Bonuses to directors and staff
A proper provision may be made in the annual accounts for specific bonuses paid up to nine months after the year end. Take care to ensure that these are charged to PAYE and NI as appropriate.
Pension contributions
Contributions to registered pension schemes are normally allowable for tax in the year of payment. Tax relief may need to be spread where contributions in the current period are more than 2.1 times those of the previous period. The excess is the amount of the contribution that exceeds 1.1 times the contributions paid in the previous period. Where the amount of this excess is £500,000 or more the tax relief will be spread over 2 to 4 years.
Please note: Most income and capital gains earned by a pension fund on sums invested are tax free.
Got any questions? Feel free to give McDade Roberts a call on 01772 717110 and we will be more than happy to have a chat.