Corporation tax for start-ups

Corporation tax for start-ups

Staying on top of business accounting can be time-consuming and difficult, and that’s particularly true for new business start-ups. If you’re planning to set up a limited company, corporation tax is just one of the regular taxes your business will need to pay.

As small business experts, we have compiled this brief guide to corporation tax to provide some understanding and help you decide whether setting up a limited company is the best way ahead for your start-up.

What exactly is corporation tax?

Corporation tax can very simply be described as the registered company equivalent of income tax. Limited companies are classed as separate entities within the UK tax system and corporation tax is levied on profits made by your business. The vast majority of business profits are currently taxed at a flat rate of 19% (2019). You can find out more about corporation tax and the “ring fence” exceptions to the 19% rating on the UK government website. Any alterations to the rate of corporation tax will be announced in the Chancellor’s regular budget statements. For example, the government are planning to reduce the tax rate to 17% by 2020, although this has not yet been fully confirmed.

In addition to the above tax on profits, businesses are also charged corporation tax on the sale or disposal of any business assets (known as chargeable gains).

As you’ll probably already have noted, the corporation tax payable is lower than current rates of income tax on personal income. This is one of the reasons many start-ups opt to set up a limited company from the outset.

How do I register to pay corporation tax?

If you are setting up a limited company, you are legally obliged to register the business for corporation tax within three months of the commencement of trading. Again, you can find out more about this from the government’s website, but it is important to note that fines are payable for businesses that do fail to register.

So, what’s the catch with this tax?

Yes, it’s true there is one drawback with corporation tax, as it is one of the few taxes that has to be paid in advance. The tax needs to be paid prior to filing company tax returns, typically nine months prior to the end of the accounting period for the past financial year.

Even if your new business makes a loss in the first year or so, you will need to make a corporation tax declaration. Although, of course, there won’t be any tax payable.

You can find out more about business taxation and accounting here on the SQK Accounting blog, or get in touch to discuss our expert, affordable cloud accounting services for start-ups.

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