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Corporation Tax: Penalties and charges explained

Paystream News

Michelle Derungs

Friday 23rd Jun, 2017

When operating as a limited company contractor, it's important to understand what corporation tax is, when the Corporation Tax deadlines are and what penalties and fines you could occur should you miss those deadlines.

What is Corporation Tax?

If, as a limited company contractor, your company made a profit over the financial year, you will be liable to pay Corporation Tax (CT). On 1st April 2017 Corporation Tax fell from 20% to 19% and it’s predicted to decrease a further 2% by the 1st April 2020.

Your Corporation Tax is calculated against your taxable profits within the financial year, which is determined by the profit before tax. This profit before tax would then be adjusted for Items such as entertainment, depreciation and capital allowances before the corporation tax is calculated.

You will then be liable to pay the final tax amount over to HMRC.

What are the Corporation Tax deadlines?

Submission deadline

If you are responsible for submitting a Corporations Tax Return, you will need to include details of company turnover, profits before tax, any allowances and the total tax due to HMRC.

Submission deadlines are one year after the end of the return period, for example if a return is for 1st April 2016 to 31st March 2017 then the submission deadline would be 31st March 2018.

Payment deadline

Payment of Corporation Tax is due 9 months and 1 day after the accounting period. So if we take our earlier example of a return for 1st April 2016 to 31st March 2017, then your tax payment to HMRC will be the 1st January 2018.

What penalties can you incur?

If you submit your return late you will be liable to pay penalties, these penalties are:

Aside from late submission fees, you can also incur late payment penalties from HMRC if you miss the payment deadline of your corporation tax. If you miss this deadline, HMRC will charge 3% per annum.

How can PayStream help?

With many online and high street accountants, you would be responsible for preparing, calculating and filing your own corporation tax return, whilst having to ensure everything was correct in order to avoid penalties.

With PayStream's limited company service, My PSC, we advise our contractors on what their Corporation Tax liability is and when it needs paying so there is no reason why you should ever miss a deadline or incur a penalty.

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