23 Nov What is Corporate Tax and Allowances and How it Affects Your Business?
You can get confused when it comes to paying and keeping track of so many different types of taxes. Finding an appropriate package is another task. If you are self-employed, then paying taxes and running a business become two different things. Some people try to do it on their own. This is not the best idea given that you already have a lot on your plate. So, don’t try to set your feet on two boats.
Basically, corporate tax applies on the profits that your corporation or company makes. You have to pay taxes on your earnings coming from different departments of your company.
If you are starting a business, you probably want to make profits as soon as possible. It is a long journey though. But with hard work and some praying you achieve it in a short span of time. Then you have to pay tax.
What is the difference between income tax and corporation tax?
If you know about income tax, then it is easy to understand corporation tax as well.
As the name represents, the corporation tax is for companies and they don’t pay personal allowance. So, working hard for the profits might come at a price. You have to pay corporation tax as soon as you start to make profits.
What are the things on which you have to pay corporation tax?
If you are running a company successfully, you have to pay corporation tax on the profits you make. You have to pay the tax on things which makes you profit. Some may include:
- Profits you make from investments
- By selling your assets with profit
- Land and other kinds of properties to make profits
- Machinery and other equipment
- Shares of your company
What are the corporation tax rates?
This is the main part. Corporation tax on your company profit is 19%. The good news is that the UK government is making efforts to bring that number down. Get excited, because you save more on your profits in the next couple of years. The government is committed to bringing the rate down to 17%.
When do you have to pay the corporation tax?
You have to pay this tax before the accounting period of your company. The accounting period is the time in which you file your tax returns.
You have to play your time cards carefully. You have to pay corporation tax in 9 months’ time. This is a bit tricky; the deadline is not the same as your tax return filing. The process is a little bit different. You have to pay the corporation tax before the tax return filing. That means that your deadline will come before your company’s tax return filing time.
You may get discounts in the form of deductions which is called relief. We will look into this in the following paragraphs.
How to register for the corporation tax?
To register yourself, you have to set up an account first. You can go to the Gov.uk website to register yourself on HMRC. You should do it within three months of trading.
Any selling, advertising, renting or if you are employing someone means that you are trading.
If you own a business and are busy making money, it is not advisable to go through all the process by yourself. We have some of the best experts in the UK working in the field.
Allowances and Reliefs
Don’t worry, you don’t have to pay taxes on your normal expenses. The is only applicable on your profit. So, deduct any expenses from which you are not getting profit before tax return filing.
Can you claim capital allowance?
Yes, and you have to claim it on your business assets. You do want an oven to make a pizza or to bake turkey. The good thing, you don’t have to pay any tax on it if you buy one for your restaurant.
Multiple essentials come into this category. For example, your equipment, machines, cars you use to run business and other things.
Is there any relief you can get?
There are some reliefs available for you. Check if you think that you come into the category of some of the following reliefs:
Research and Development (R&D) Relief
If you are putting an effort into creating something and doing research work, then you don’t have to pay any money to the government in the form of tax. In this case, you just have to meet some requirements to claim this relief.
We have already discussed Research and development (R&D) related reliefs in detail for you.
What is Patent Box?
Surprisingly, your life gets better in terms of tax if you are an inventor. If you are into making new gadgets or anything, you can make profit on your patent and get reductions on your tax which is kind of really cool.
Though a competitive process, companies get elected in the patent box. They only have to pay 10% corporation tax down from 19%.
Can you get relief if you are running a theater?
The creative relief is called state aid. This comes into the category of reliefs for creative industries (CITR). Different types of reliefs are available for 8 different creative industries:
- Film Tax Relief
- Animation Tax Relief
- High-end Television Tax Relief
- Video Games Tax Relief
- Children’s Television Tax Relief
- Theatre Tax Relief
- Orchestra Tax Relief
- Museums and Galleries Exhibition Tax Relief
Goodwill and other relevant assets
With this type of relief, you can get corporation tax reduction on the goodwill and relevant assets. A lot of people don’t really understand the terms correctly. Goodwill assets include the brand name value, customer base and good relations and other related goodwill assets.
You can get this relief if you are wrapping up your business. By any chance, if you get this relief, it will allow you to transfer certain types of assets to your shareholders.