Indie Dev Guide- Release 7! Corporation Tax
15th November 2016
A UK limited company pays corporation tax on its taxable profits for each accounting period. Corporation tax is due 9 months and 1 day after the accounting period end. For example, a company with a 31 March year end, would be required to pay any tax due by the following 1 January. However, the company tax return does not need to be submitted until 12 months after the accounting period end.
The corporation tax rate for 2016/17 is 20%. From April 2017 the rate is reducing to 19% and it is currently proposed that the rate is decreased to 17% from April 2020.
Important points to consider
Accounting profits vs taxable profits.
Profits taxable for corporation tax are often different to profits appearing in the company accounts and this can be for a number of reasons such as:
- Not all business expenses are allowable for tax purposes (e.g. client entertaining or depreciation) and must be added back into the profits for tax purposes.
- Capital additions, which are depreciated in the accounts, attract different rates of allowances for tax purposes. For example, if you buy a computer, the cost might be written off in the accounts over 3 years, but for tax purposes, you are likely to obtain full relief in the year of purchase.
- Taxable profits can be reduced by way of Research & Development (R&D) and Video Games Tax Relief claims (VGTR).
- If a company has made a taxable loss for the accounting period, these losses can be carried forward and offset against future profits of the same trade.
- If the company had a corporation tax liability in the previous period, the losses for the current accounting period can be carried back, enabling you to claim a corporation tax refund.
- Losses created by R&D or VGTR claims, can be surrendered for repayable tax credits.
The corporation tax liability can be manipulated through effective, legitimate pre year-end planning including bringing forward planned expenditure or extra pension contributions.