The Bionic guide to corporation tax for small business

Taxes are an inevitable part of all our lives, but it’s only when running your own business do you realise just how complicated things can get – income tax, VAT, business rates, and national insurance all need to be accounted for.  

And, all being well, corporation tax is another one you’ll need to factor in. Our corporate tax guide explains everything you need to know, including why you should actually be glad you’re paying it (well, sort of glad you’re paying it). 

What is corporation tax for businesses? 

Corporation tax is a tax paid by UK businesses on any profits they make. Calculated and paid annually based on your corporation tax accounting period' - usually the same as your company's financial year.

The UK’s main corporate tax rate is currently 25%. But for businesses that make less than £50,000, the 19% rate will still apply - this is known as the 'small profit rate'.

Although no one enjoys paying taxes, if you’re paying corporation tax then you’re in a relatively good place as your business is turning a profit.  

There’s no tax-free corporation tax allowance, which means all profits are taxable. But if your business isn’t making a profit, you don’t pay corporation tax. It’s that simple. 

What is the UK’s corporation tax rate in 2023-2024? 

As of April 2023, the rates for Corporation Tax changed. There are essentially two main rates:

• Main rate: The UK’s current corporation tax rate main is 25%, (this was previously 19%). This rate only applies to businesses with profits of more than £250,000.  
• Small profits rate: The UK now applies a tax rate for businesses that have a taxable profit of less than £50,000. This is known as 'small profits rate'.

I your taxable profits are between £50,000 and £250,000 you will pay the main rate, but be eligible for a reduction as 'Marginal Relief'.

What is Marginal Relief?

Marginal Relief works as a sliding scale in gradual increases between the small profit rate of 19% and the main rate of 25%. So, if you have taxable profits between £50,000 and £250,000, a reduction from the main rate will be calculated based on your profits. This means you'll pay less tax than the 25% main rate.

If your company has profits of over £250,000, you won't be eligible for Marginal Relief. 

Who pays corporation tax? Do small businesses need to pay?

Corporation tax in the UK is charged on profits made by any businesses that are registered as limited companies. If you’re a sole trader or partnership, you won’t pay corporation tax but will income tax on your profits as part of your self-assessment tax return. 

There are some exceptions though, and the following types of businesses often need to pay corporation tax, even if they’re not a limited company: 

• Co-operatives to groups of individuals carrying out a business 
• Members clubs, societies and associations 
• Housing associations  
• Trade associations  

When you register your business as a limited company with Companies House, you will be registered for corporation tax at the same time. For more information, go to the Register your company page on the government website. 

You’ll need to notify HMRC within three months and register to pay corporation tax. You’ll also need to register your company as 'active', 'trading', 'non-trading' or 'dormant' for corporation tax purposes. For more information, check out the government guide to trading and non-trading for corporation tax. 

When does corporation tax need to be paid? 

Corporation tax is calculated annually based on your business's corporation tax accounting period, which is usually the same as its financial year.  

If you have taxable profits of up to £1.5 million -a position most SMEs will be in - you need to pay your corporate tax bill nine months and one day after the end of your accounting period. This means that if your company’s accounting year ends on March 31, you’ll have to pay your corporation tax bill by January 1. 

If you have taxable profits of more than £1.5 million, then you need to pay your corporation tax in instalments.  

You can find out more about the rules and deadlines at the government website. If you’re a large business, check out the deadlines for taxable profits of between £1.5 million and £20 million. If you're a very large business, here’s more information on paying tax on profits of more than £20 million. 

How to pay corporation tax for businesses

You can pay corporation tax in any of the three following ways: 

1. Direct Debit – Use this to make a single, one-off payment. You are covered by the Direct Debit guarantee 
2. Bank transfer - Get HMRC’s bank details to make your payment using your bank’s website, app or at a branch. You can do this using online banking, telephone banking, Faster Payments, CHAPS, or Bac. 
3. Debit card or corporate credit card - There is no fee for paying with a personal debit card, but corporate credit and debit cards are charged a fee. This can only be done online.

You can't pay your corporation tax bill over the phone directly to HMRC.

The way you pay your corporation tax bill will have an effect on the time it takes for your payment to process.  

• Payments are taken on the same day or the next day when using online banking, telephone banking or CHAPS (Clearing House Automated Payment System) 
• Payments can take up to three working days when paying in branch at your bank or building society, and when paying online by debit or corporate credit card. You should also allow for three days’ clearance when paying by BACS (Bankers' Automated Clearing System) or using a Direct Debit that you’ve used before. 
• Payments can take up to five working days to clear when you pay by a newly created Direct Debit. 

If your payment date falls on a weekend or a bank holiday, you need to make sure you pay in enough time for your payment to have cleared by the last working day before your deadline. 

You can't pay your corporation tax bill by post or at the Post Office.  

For more information, go to https://www.gov.uk/pay-corporation-tax  

What if my business has made no profit in the last year? 

If your business hasn’t made any profits during the last accounting period, you need to let HMRC know that you have nothing to pay. 

You can do this by filling in the ‘nil to pay’ form, or by marking the payslip on any HMRC reminders as ‘NIL due’, before sending it back. 

If you don’t let HMRC know, you’ll keep getting reminders sent to you. 

And you still need to file your company’s tax returns as normal, even if you’ve no corporation tax to pay. 

How to check if your corporation tax has been paid

You'll need to check your HM Revenue and Customs (HMRC) online account to confirm that your corporation tax has been paid. It should be updated within a few days of you making the payment to HMRC.

What happens if your corporation tax payment is late? 

HMRC doesn't like late payments. well and will hit you with a fine if you post your tax return late or you're late paying your tax bill.  You'll also be fined for giving them inaccurate information, even if it's by mistake.

Even if you're accountant is to blame for a late or inaccurate return, it's the company director who'll be held responsible and have to foot the bill.

What if my tax return is late?

HMRC has a sliding scale for late tax returns:  

• One day late = £100 fine.  
• Three months late = An additional £100 fine.  
• Six months late = HMRC will estimate your bill and add a 10% penalty onto what it thinks your unpaid tax will be.  
• 12 months late - Another 10% is added to your estimated tax bill.  

What if my corporation tax payments are late?

If you don't pay your corporation tax bill on time, you'll be charged interest on the amount you owe and might be hit with a further penalty.  HMRC can collect payments in the following ways:

• Directly from your earnings or pension  
• Via debt collection agencies
• Through the sale of your assets (except in Scotland)  
• Applying to the courts to take money from your bank or building society accounts (except in Scotland)
• Making you bankrupt or closing down your business

If you've missed a payment, get in touch with the HMRC corporation tax helpline on 0300 200 3410. Lines are open from 8 am to 6 pm, Monday to Friday.

If you can't afford to pay your corporate tax bill, you need to contact HMRC and set up a Time to Pay arrangement as soon as possible. If you're in this situation, call the HMRC Payment Support Service on 0300 200 3835. Lines are open from 8 am to 6 pm, Monday to Friday.

What if I give inaccurate information?

If your tax returns are inaccurate, you'll be fined by HMRC. But the level of the fine will depend upon whether the taxman believes the mistake was deliberate and whether you tried to hide it. If you have made a mistake on your tax return, you need to let HMRC know as soon as possible, preferably before they get in touch with you.  

• If the mistake was careless but not deliberate you could be charged between 0-30% of your tax bill if you highlight it, or 15-30% if HMRC spots it first.  
• If the mistake was deemed to be deliberate but not hidden, you'll be hit with a 20-70% fine if you disclose the mistake, or 35-70% if HMRC finds it.  
• If the inaccuracy was deliberate and you tried to hide it you may be charged 30-100% in fines if you admit it, and 50-100% if you don't.  

In short, be honest and don't make any mistakes, but if you do make a mistake don't try to hide it.

What if I can't afford to pay corporation tax?

If you can’t afford your corporation tax bill in full and on time, you need to get expert help and advice as soon as possible. The debt won't go away if you ignore it, it'll just get worse. You can contact HMRC about general corporation tax enquiries by calling 0300 200 3410. You'll need to have your Unique Tax Reference (UTR) to hand when calling.

Can I pay HMRC in instalments?

If you can't pay your corporation tax bill in full, you might be able to pay it in instalments if you can negotiate a Time to Pay arrangement with HMRC. This will either give you more time to pay or set up a schedule so you can pay your tax in instalments.

If you want to make any changes to your company tax return, you'll usually need to do it within 12 months of the filing deadline. You can do it online, using commercial software or by sending a paper return to your company's corporation tax office.  

Once you notice a mistake or inaccuracy in your accounts, you must send an amendment to Companies House on paper, clearly requesting to replace the original accounts, that the new records are now the statutory accounts and that they were prepared as at the date of the original accounts.  

How Bionic can help cut your business admin

Corporation tax is another piece of business admin that can take you away from doing what you do best - running your business. The same goes for sorting your business essentials, like utilities, insurance, and finance.

So why not let the tech-enabled team at Bionic sort all that for you? We can sort your next business energy and business broadband contract, make sure you have the right insurance in place, or help you find a business loan if you need to cover expansion, cash flow, or anything in between.