A UK Corporation Tax Guide for Contractors

The UK tax landscape can be a daunting prospect for contractors and managing your tax affairs as well as running your own successful contracting business is no easy task.

It’s widely known that contracting has become an ever more popular career path and it’s easy to understand why. As a contractor you will sell your skills and services to your clients working on a project basis. The pay is good, you control your hours and work schedule and can achieve a great work/life balance with full control of your business.

The majority of contractors work through their own limited company due to the various advantages this business structure offers. Key amongst those advantages is the opportunity to leverage tax-efficiencies to minimise your overall tax liability, while of course remaining compliant with HMRC regulations, to increase your take home pay.

It’s important, therefore, that limited company contractors understand their tax obligations as part of the overall financial management of their business including Corporation Tax.

In this guide, we’ll explore Corporation tax from a contractor’s perspective including how Gorilla Accounting can help you. Let’s kick off with a definition check!

What is UK Corporation Tax?

Corporation Tax is a type of tax that is levied on the profits made by limited companies in the UK and branches of companies based abroad that operate in the UK Corporation Tax is different to Income Tax as it is applied to the business itself rather than the individual. It’s calculated based on the taxable profits of the limited company. Typically, for contractors, this would be income made from client contracts with allowable expenses such as business expenses, salary and pension contributions deducted.

There isn’t a threshold on Corporation tax and it must be paid by all limited companies on their profits. The limited company director (or directors) have the legal responsibility of ensuring that they file their Corporation Tax returns with HMRC and pay the amount owing by the deadline.

What are the UK Corporation Tax Rates?

In the 2023/24 tax year the Main Rate of corporation tax is 25% which applies to limited companies with a taxable profit of £250,000 or more. Single limited companies with augmented profits below £50,000 are eligible to pay a reduced amount of Corporation Tax at the 19% Small Profits Rate (SPR). Augmented profit is a company’s total taxable profits plus any exempt dividends received from non-group companies in the accounting period. Close investment holding companies – companies whose primary purpose is to hold investments in other companies – are ineligible for the SPR and must pay Corporation Tax at the 25% main rate.

The situation is different for limited companies with taxable profits between £50,000 and £250,000 as they are eligible to claim marginal relief and pay a tapered rate less than 25% in the Marginal Rate band.

If, however, the company has been associated with another company and one company had control of the other, or both were under the control of the same person or persons within the preceding 12 month accounting period, the associated company rules might impact the amount of Corporation Tax payable. For Corporation Tax purposes the profits of the associated companies can be combined and divided by the number of associated companies which can result in Corporation Tax being payable at a higher rate.

When are the UK Corporation Tax Deadlines?

The deadline to file your Corporation Tax return is usually 12 months after the end of the accounting period the tax return covers. The deadline for paying your Corporation tax bill will usually be 9 months and a day after the accounting period ends. There are penalties in place should you miss either deadline so it’s important to file your returns and pay your liability accurately and on time.

What are the Penalties for Late Corporation Tax Filing and Payment?

Late Filing Penalties

The penalties for filing your Corporation Tax return late are:

  • 1 Day Late – £100 Penalty
  • 3 Months Late – Another £100 Penalty
  • 6 Months Late – HMRC estimates your Corporation Tax bill and a penalty of 10% of the unpaid tax is levied. This is known as a Tax Determination and cannot be appealed
  • 12 Months Late – Another 10% of any tax not paid

Penalties also ramp up if you repeatedly file your return late. Should you file late 3 consecutive times, the £100 penalties increase to £500.

Penalties are also in place if your Corporation Tax return contains errors. The severity of these depends on whether it was an accidental or deliberate error and whether you tried to conceal it so attention to detail is paramount

Late Payment Penalties

If your company pays its Corporation Tax bill late, HMRC will charge you interest on the unpaid amount. If payment isn’t forthcoming, HMRC can take steps to recover the amount owed including taking legal action, selling company assets, engaging with a debt collection agency or recovering your liability from the business bank account.

How Is UK Corporation Tax Paid?

There are various ways to settle your Corporation Tax bill including Direct Debit, a credit or debit card payment, a telephone or online bank transfer or approving the payment through your business bank account.

How Gorilla Can Help You

There are many regulations that limited company contractors have to comply with regarding Corporation Tax including filing your annual returns, paying what you owe, maintaining statutory accounts and keeping accurate financial records. This can be time consuming and the implications of not ensuring compliance can be significant.

Gorilla Accounting are expert accountants for limited company contractors. When you appoint us you will work with your own dedicated accountant who will be on hand to provide unlimited support and advice including personalised guidance on tax reliefs including how to reduce your Corporation Tax liability and optimise your overall tax position to increase your take home pay.

All your business and personal accounting needs will be expertly handled, you receive full access to market-leading FreeAgent accounting software and a same working day response to all your queries is guaranteed.

If you have any queries on Corporation Tax or our limited company accounting service, call 0330 024 0406 to speak to an accountant today or request a callback from a member of our team.