The Impact of Corporation Tax on Your Business: A Comprehensive Guide

27 Jun 2023

Corporation tax is a significant consideration for businesses operating in the UK. It is a tax levied on a company’s profits, and understanding its impact is crucial for effective financial planning and decision-making. In this comprehensive guide, we will explore the implications of corporation tax on your business in the UK market, providing valuable insights to help you navigate this important aspect of running a company.

Understanding Corporation Tax

Corporation tax is the tax paid by limited companies and certain other organisations on their profits. It is calculated based on taxable profits, which is the difference between total revenue and allowable expenses, deductions, and reliefs. The tax rate is determined by the government and can vary depending on the jurisdiction. From April 1, 2023, the main corporation tax rate in the UK will increase from 19% to 25%. This means that companies will face a higher tax burden. Tax advisors need to understand how this tax calculation works, especially for groups of companies and for those with accounting periods that span across April 1, 2023. They also need to be familiar with the calculation of the tax charge for companies with profits between £50,000 and £250,000. For large corporate groups under the QIPs (quarterly instalment payments) regime, timing and cash flow issues can be important to consider.

Calculating Corporation Tax Liability

To determine your corporation tax liability, you need to calculate your taxable profits. Taxable profits are calculated by deducting allowable expenses, capital allowances, and losses from your total income. The resulting figure is then subject to the prevailing corporation tax rate.

Managing Corporation Tax Payments

Businesses in the UK are required to report and pay their corporation tax on time. It is important to understand your company’s tax obligations and meet the deadlines set by HM Revenue & Customs (HMRC). Failure to comply with these requirements can result in penalties and interest charges.

Tax Planning and Reliefs

Effective tax planning can help minimise your corporation tax liability while remaining compliant with tax regulations. Explore legitimate tax reliefs and allowances that apply to your business, such as R&D & RDEC tax credits, Creative Industry Tax Credits (such as Film, and Video Games Tax Credits), capital allowances, and other industry-specific incentives.

Group Structures and Losses

Businesses with multiple entities or subsidiaries may be able to benefit from group structures for tax purposes. Group relief allows the transfer of losses between companies within the group, potentially reducing the overall corporation tax liability. It is crucial to understand the eligibility criteria and seek expert advice to ensure compliance with the applicable rules.

Tax Reporting and Compliance

Accurate and timely tax reporting is essential to meeting your corporation tax obligations. Maintain organised records of your financial transactions, including sales, expenses, and assets. Consider implementing appropriate accounting software or hiring accounting professionals to ensure compliance with tax reporting requirements. QuickBooks, an Adsum partner, has a reporting feature that provides a real-time view of where your business stands so you can make better business decisions. Financial statements, including balance sheet, profit & loss and cash flow statements are available on the platform.

Keeping Up with Tax Legislation

Tax laws and regulations are subject to change, and it is crucial to stay informed about any updates that may impact your business. Regularly review HMRC guidelines, and consider joining industry associations or networks to stay updated on relevant tax developments. Our Twitter keeps you up-to-date with all the latest on Tax Legislation, and wider updates from the HMRC.

Corporation tax has a significant impact on businesses in the UK. By understanding and effectively managing your corporation tax obligations, you can optimise your tax position, ensure compliance, and minimise tax liabilities. Stay informed about the latest tax legislation, explore available reliefs and allowances, and consider seeking professional advice to navigate the complex world of corporation tax. By proactively managing your corporation tax, you can contribute to the financial stability and growth of your business in the UK market.