{"id":9560,"date":"2022-06-04T13:08:15","date_gmt":"2022-06-04T12:08:15","guid":{"rendered":"https:\/\/www.qualitycompanyformations.co.uk\/blog\/?p=9560"},"modified":"2024-04-12T19:14:16","modified_gmt":"2024-04-12T18:14:16","slug":"how-corporation-tax-works","status":"publish","type":"post","link":"https:\/\/www.qualitycompanyformations.co.uk\/blog\/how-corporation-tax-works\/","title":{"rendered":"How Corporation Tax works"},"content":{"rendered":"
Corporation Tax is a type of business tax that companies pay on their taxable trading profits. In the UK, the rate of Corporation Tax that a company pay depends on their level of profits in a year. When you register a company, you are legally obligated to register for Corporation Tax with HMRC online within three months of starting to trade.<\/p>\n
In this blog, we explain how Corporation Tax works. We also cover how and when to register for it, what counts as taxable profits, how to file Company Tax Returns, and when to pay the tax you owe to HMRC.<\/p>\n
Companies in the UK pay different rates of tax depending on their level of profits. At present, the rates of Corporation Tax in the UK are:<\/p>\n
Companies with profits between the small profits rate and the main rate can claim Marginal Relief<\/a>, which provides a gradual increase in the effective Corporation Tax rate between the two rates.<\/p>\n However, Marginal Relief is not available to\u00a0non-UK resident companies or\u00a0close investment holding companies.<\/p>\n Furthermore, companies whose profits exceed \u00a3250,000 cannot claim Marginal Relief on the portion of profit between the small profits rate and the main rate. In this situation, all company profits are liable to 25% Corporation Tax.<\/p>\n All \u2018active\u2019 companies are required to register for this tax. HMRC considers a company to be active for Corporation Tax purposes when it is:<\/p>\n If none of these activities apply to your company, it will be classed as dormant for Corporation Tax purposes. In such instances, you must tell HMRC as soon as possible that your company is not currently trading and is dormant for Corporation Tax purposes<\/a>.<\/p>\n There is no requirement to register for Corporation Tax or file Company Tax Returns and annual accounts with HMRC if your company is dormant. However, you will need to prepare dormant company accounts and confirmation statements for Companies House.<\/p>\n Do all companies need to register for Corporation Tax?<\/h3>\n
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