Overview

Corporation Tax is a tax on limited companies’ taxable income or profits. For Corporation Tax, companies have to calculate their own tax liabilities, and are liable to pay the calculated tax to the Inland Revenue without prior assessment. Payment of Corporation Tax itself is due 9 months and one day after the company’s “normal due date” – usually the last day of your annual accounting period. Companies making annual profits of up to £300,000, pay Corporation Tax at the Small Profits Rate. The Small Profits Rate for the 2014/15 tax year is 20% . The main rate of Corporation Tax (for profits of £1.5 million or more) is currently 21%. It will be reduced to 20% in April 2015. At this point, the Small Profits Rate and main Corporation Tax rates will be aligned for the first time in decades.

Nonresident companies

Nonresident companies are subject to UK corporation tax only if they carry on a trade in the United Kingdom through a permanent establishment. A permanent establishment arises either from a fixed place of business in the United Kingdom through which the nonresident company carries on its business, or from an agent exercising authority to do business in the United Kingdom on behalf of the nonresident company. The amount of profit attributable to a permanent establishment is computed in accordance with the separate enterprise principle.

A company is resident in the United Kingdom if it is incorporated in the United Kingdom or if the central management and control of the company is exercised there. However, companies regarded as resident under domestic law, but as nonresident under the tie-breaker clause of a double tax treaty, are regarded as nonresident for all corporation tax purposes.

Rates of corporation tax

The main rate of corporation tax for large companies (companies with taxable profits above GBP1,500,000) is 21% for the financial year beginning 1 April 2014. The rate will decrease to 20% for the financial year beginning 1 April 2015. The rate is 30% for companies with ring-fence profits (that is, profits from oil extraction and oil rights in the United Kingdom and the UK continental shelf). If an accounting period does not coincide with the financial year, the profits for the accounting period are time-apportioned and the appropriate rate applied to each part. A company may claim the small profits rate of corporation tax, which is 20% (19% on ring-fence profits of companies) if its taxable profits for an accounting period are less than GBP300,000. For the financial year beginning 1 April 2014, the effective marginal rate for companies with non-ring-fence profits between GBP300,000 and GBP1,500,000 is 21.25%. These limits are divided by one plus the number of associates if a company has associated companies (subsidiaries or fellow subsidiaries), regardless of whether they are in or outside the United Kingdom. For the financial year beginning 1 April 2015, the marginal rate will no longer be relevant for non-ring-fence profits as a result of the unification of the small profits and main rates.