Corporation Tax
Corporation Tax is payable on limited company profits, these profits are subject to quite different rates from income tax. The current rates are 20% for small companies and the full rate 26% for large companies (Tax Year 2010/11 the rates were 21% and 28% respectively).
The tax that is payable is determined by the level of profitability the company achieves for tax purposes during its financial year. Companies are also subject to Capital Gains Tax on disposals of assets, any such gains will form part of the corporation tax computation.
If the financial year end is not 31 March (the fiscal year) the company may have two tax rates applied to their profits. For example a small company whose financial year end is 31 December 2011 would be charged corporation tax at 21% for the three months to the end of March 2011 and 20% for the rest of the year.
For the small companies tax rate to apply the company or group (a group is a number of companies owned by the same person) must make a profit of no more than £300,000.
The next rate is the marginal rate which applies to a company or group which make a profit of between £300,000 and £1.5 million. The first £300,000 is charged at 20% (2010/11 21%) the marginal rates are calculated on the profit between £300,000 and £1.5 million work out at 27.75% (2010/11 29.75%). We consider the profits in this range are not beneficial, and we will try to manage the company with you to keep out of this range. Practically in many cases this would be a nice problem to have as most owner operators of a private company would be very pleased to achieve a profit of more than £300,000 after all our costs including director’s remuneration.
If a company makes a taxable profit of greater than £1.5 million it is known as large company and so subject to the full Corporation Tax rate of 26% on all their profits for the year (Tax Year 2010/11 28%).
Calculating company tax is a vital component of year end accounts, you do not have to worry we will do this for you and prepare your company corporation tax form known as a CT600, when we prepare your annual accounts.