The system with which corporate Taxation works in the United Kingdom is unique to the economy. In fact, it is called the corporation tax. In the UK, payment for this tax is made to three levels of governance- central government (Her Majesty’s Revenue and Customs), devolved governments and the local government.
About the Tax System
The tax is levied on the annual profits of companies and the profits made by permanent non-UK companies. In the Uk, how it works is that the Corporation Tax is calculated at the rates that apply in your company’s accounting period. The tax ranks fourth largest source of income to the government. This is after VAT, NIC, and Income tax.
The corporation tax system has evolved over the years and eras. Before the 1965 tax’s enactment, the corporate tax had the same rate as income tax. So both individuals and companies paid taxes at the same rate. Then this gave way to a system that allowed for companies and associations to pay one corporate tax.
And ever since, the system has been experiencing modifications, especially in the tax rate. Presently, the rate for corporation tax in the UK is 19% for the year beginning 1 April 2019. There are even rumors that the rate will fall to about 17% by April 1st, 2020.
The Timeline of Corporation Tax rates in the UK
Below is a list of the different rates levied on corporate earnings across different years.
2018-19
Profit below £300,000- 19%
Profit above £300,000 – 19%
2017-18
Profit below £300,000- 19%
Profit above £300,000 – 19%
2016-17
Profit below £300,000- 20%
Profit above £300,000- 20%
2015-16
Profit below £300,000 – 20%
Profit above £300,000- 20%
2014-15
Profit below £300,000 – 20%
Profit above £300,000 – 21%
2013-14
Profit below £300,000 – 20%
Profit above £300,000- 23%
2012-13
Profit below £300,000 – 20%
Profit above £300,000 – 24%
Payment For Corporation Tax Can be Made via The Following Methods
- At your bank or building society, you can pay your Corporation Tax bill by debit card, cash or by cheque
- Debit or credit card.
- Direct debit from your HMRC online account
- Online or telephone banking. You could use Faster Payments, CHAPS or Bacs
How to Calculate Your Tax
Calculating your corporation tax is not difficult, it is, in fact, one of the easiest things to do. Below is a concise, step by step method of calculating your tax. So now, sit back and learn.
First, know your business’s total accounting profit for the year. Then secondly, calculate all of the costs that you incurred during the course of the year (costs that are not allowable for tax relief.) For instance, the cost incurred in the entertainment of external auditors. Then finally, calculate the running costs that are allowable for tax relief.
After getting all these figures, sum them up, and you’ll get your taxable profit. And from there, calculate the portion of the taxable profit that is the tax. You’ll do this by multiplying the taxable profit by the corporation tax rate which is presently at 19%.
