We often find that a lot of clients are “ok” with the accounts side of things, especially if they are actively involved with the business. They might not be able to present them in the format needed to be able to file them with Companies House and HMRC, but they understand the basics and very often the year-end figures are as expected.
Things can fall down when it comes to Business Tax or Corporation Tax as it’s normally referred to.
All Limited Companies (unless dormant) must file a Corporation Tax Return with HMRC by 12 months after the end of the accounting year. If your accounting period is more than 12 months, e.g. if you change your year end, then you may have to file 2 Corporation Tax Returns, as each return can only ever cover a 12 month period.
A set of full accounts gets attached to the return and is sent to HMRC at the same time.
Why don’t I just pay tax on the profits in my accounts?
There are a few areas we need to consider when calculating your tax adjusted profits, and the simplest one to explain is Depreciation (accounts adjustment) vs Capital Allowances (tax adjustment)
If you buy a machine to use in your business over several years, it isn’t treated as an expense in your profit and loss account but is shown as an asset on the Balance Sheet as your business will use it for years to come.
Depreciation is a way of writing off the cost of the asset to the Profit and Loss account each year as an expense (so it reduces your profits). The problem HMRC has with this is that each company can choose their own depreciation policy, so you could write that asset off over 4 years, but someone else could do it over 5 years.
To ensure that all businesses have the same rules for tax relief, we have to disallow Depreciation for Tax but might be able to claim Capital Allowances instead, which are rules set in stone by HMRC
Rates of Corporation Tax:
Currently, there are 2 rates of Corporation Tax in the UK. For the first £50,000 of profits your company will pay 19% and for profits over £250,000 your company will pay 25% in tax.
For the profits between these 2 bands, you pay 25% less “Marginal Relief” so each extra pound of profit between £50,000 and £250,000 is taxed at an effective rate of 26.5%, which is the worst place to be!
Effective tax planning can help you reduce your profits to below the £50,000 threshold so that all profits are taxed at the lower rate of 19% which is also where we can provide you with guidance
Understanding your tax:
All our clients are offered the chance to review their company tax return with a director. This doesn’t have to be face to face although you are more than welcome to call into the office and meet the full team.
If a face-to-face meeting isn’t practical or you would prefer a Teams meeting/phone call, then this can also be arranged.
These meetings are your chance to ask us any questions you may have, not only about the tax return, but also about anything else which has cropped up during the year. If we can’t answer your questions during the meeting, or if your query is outside the scope of your accounts fee, then we will get back to you as soon as we can or quote you for any additional ad-hoc work which needs to be done.
We encourage all our clients to phone us or email us with any queries as once a decision has been made, it’s sometimes difficult to change things, and we want you to be confident that you are making the right choices for your business.
Finalising and filing:
Once you are happy with the tax return and we have made any changes that need to be made, we will upload it to your client portal for approval electronically. The return and calculations will be available in your portal for you to view as and when needed, and they can also be downloaded if needed
We then receive confirmation that the files have been signed, and once our fees have been settled, we will submit to HMRC for you, and email over confirmation of this, along with the details needed so that you can make the relevant payments to HMRC.
If you’d like to see how we can help you with your Company Tax Return, then contact us now.
