As a limited company based in the UK, you must legally pay Corporation Tax on all taxable profits regardless of where in the world the profit was made. This guide explains everything you need to know about Corporation Tax, including what it is, when it’s due, how to work out how much you owe based on the Corporation Tax rate, and how to go about paying Corporation Tax.

 

What is Corporation Tax?

All UK-based limited companies must pay Corporation Tax. Foreign companies with a UK branch or office are also required to pay tax on the profits made in the UK, along with clubs, co-operatives, and other unincorporated associations.

For organisations based in the UK, the tax applies to all taxable profits whether the money came from work completed in the country itself or abroad. More specifically, your company or association must pay Corporation Tax on the money it makes from:

• Its usual business (referred to as your ‘trading profits’);
• Sale of assets for more than they cost (known as ‘chargeable gains’);
• Investments.

Bear in mind that you won’t receive a bill for Corporation Tax and the onus is on your organisation to arrange the payment – you must first register with the Government, which can be done online via the gov.uk registration page.

 

When is Corporation Tax due?

The deadline for paying Corporation Tax is dependent on the profits your organisation makes:

• If your taxable profits are less than £1.5 million, you have 9 months and 1 day after the end of your accounting period to pay the Corporation Tax owed (in most cases, your accounting period will be the same as the financial year of your business).
• Organisations with taxable profits in excess of £1.5 million must pay Corporation Tax in a series of instalments: the first instalment must be paid within 9 months and 1 day of the accounting period ending, then subsequent instalments are usually required every 3 months from then on.

Ensure that you have paid the amount owed by your deadline – if you miss a deadline, your organisation will be charged interest on the outstanding amount. On the other hand, if you pay your Corporation Tax early, HMRC will pay interest to your business.

In situations where your deadline falls on a bank holiday or weekend, make sure that your payment goes through by the last working day before this.

 

How to work out Corporation Tax

As part of your Company Tax Return, you’ll need to work out how much Corporation Tax your organisation owes. The current Corporation Tax rate in the UK is 19%. From the 1st April 2023, Corporation Tax will increase to 25% for profits of over £250,000 (see the government announcement to learn more).

To work out how much Corporation Tax you owe, first calculate your total profits for the accounting period (including chargeable gains and investments). Subtract from this the value of costs associated with running your business, including allowances on assets you’ve bought such as:

• Equipment
• Machinery
• Business vehicles

Consult the gov.uk ‘Allowances and tax reliefs’ page for more detailed information on the deductions you can make.

The amount left after deducting allowances is your taxable profit for Corporation Tax. The amount you owe is based on the rate during the accounting period in question – this would be 19% of the taxable profit at present.

If the rate of Corporation Tax changed during your accounting period, then separately work out the tax due during the period before the rate was changed and during the time after. Add these two amounts together to get your total Corporation Tax owed for the accounting period.

 

How do I pay Corporation Tax?

There are several payment options for Corporation Tax, each of which takes a different number of days for your transfer to clear. Check how long your chosen payment method will take and make sure to allow enough time for the payment to go through in time for the deadline.

Regardless of which option you choose, you’ll need to have your 17-digit Corporation Tax reference number for the accounting period to hand. Before you make your payment, make sure you’ve submitted your Company Tax Return, which includes the amount of tax you owe.

Same-day payments

If you’d like your payment to go through on the same day, you can either pay via Clearing House Automated Payment System (CHAPS) or Faster Payments (online or over the phone). 

Three working day payments

BACS transfers, Direct Debits, online payments, and in-person payments at banks or Post Offices take around three working days in most cases. Paying corporation tax online is easy – just visit the gov.uk ‘Pay your Corporation Tax’ page. 

Five working day payments

The first time you set up a Direct Debit for recurring Corporation Tax payments, it should take around five working days for the payment to go through.

 

Checking your payments

Once you’ve paid your Corporation Tax, you should log in to your HRMC account to ensure that your payment has been received (your account will usually be updated within a few days of you making the payment).

 

Should I tell HMRC if there is no tax due?

Even if you calculate in your Company Tax Return that you have no Corporation Tax outstanding, your organisation is legally required to notify HMRC of this. You can inform them either by completing a ‘nil payment’ form on the HMRC ‘No Corporation Tax payment due’ page or by returning a signed Corporate Tax payslip for the accounting period marked with the words ‘NIL due’.

 

This guide has explained how to pay Corporation Tax, as well as providing all of the information you need on deadlines and how to work out how much your organisation owes.

We can help you with your Corporation Tax by:

• Informing HMRC that your company is liable for Corporation Tax
• Working with you to calculate how much you owe, and ensuring that you meet your deadline
• Establishing any allowances and reliefs your business may be eligible for

Get in touch today to learn more.

The Construction Industry Scheme (CIS) requires contractors to deduct money from payments made to self-employed subcontractors and pass this on to HMRC. The amount taken off is referred to as a CIS deduction – it works as an advance payment on the subcontractor’s tax and National Insurance (NI) contributions.

If you’re a contractor, you must register for the scheme. As a subcontractor, you’re not required to register for the scheme but doing so will reduce your CIS deductions (more on this in the section below).

Over the course of this guide, we’ll cover everything you need to know about CIS and CIS deductions. Starting by explaining who the Scheme applies to, this post goes on to explain how much the deductions should be, how to register, and how to submit returns as a contractor.

 

Who does the Construction Industry Scheme apply to?

CIS applies to all construction contractors who pay subcontractors; it also applies to self-employed subcontractors working in construction and receiving payments from a contractor. If you are employed by a contractor and are subject to PAYE, then CIS deductions do not apply to you.

Most types of construction work are covered by the Scheme. If you’re working on a building, structure, or civil engineering project, then CIS applies.

The type of work involved could be:

• Building work
• Decorating, alterations, and repairs
• Preparing the site
• Cleaning the inside of buildings after construction work
• Demolition and dismantling
• Installation of heating, lighting, power, water and ventilation systems

There are some notable exceptions to CIS. You are not subject to CIS deductions if your work involves:

• Architecture and surveying
• Scaffolding hire
• Carpet fitting
• Making construction materials
• Delivery of materials
• Secondary work on construction sites such as running site facilities

If you’re unsure whether the scheme applies to you or not, visit the Government’s page.

 

How much should CIS deductions be?

For subcontractors who are registered with CIS, the standard rate is 20% of the invoiced amount for work and travel expenses. The total invoiced amount excludes VAT paid and any expenses for materials or tool hire.

In cases where the subcontractor is not registered with CIS, the rate increases to 30% of the invoiced amount (still excluding VAT and materials or tools expenses).

As a subcontractor working in construction, you can claim some expenses back when you fill in your Self-Assessment tax return – take a look at our CIS returns service to find out more.

 

Registering for the Construction Industry Scheme

Contractors that pay subcontractors must be registered for CIS, but we would also recommend that subcontractors register so that they are subject to the reduced deduction rate of 20% rather than 30%.

To register for CIS as a sole trader, head over to the Government’s portal. The following details will be required to complete the registration process:

• Your legal business name or trading name
• Your National Insurance Number
• The unique taxpayer reference number (UTR) for your business or sole trading entity
• Your VAT registration number (if you’re VAT registered).

If you’re registering as a company, you’ll need to use the online CIS305 form. To register as a partnership, use the CIS304 form.

 

Gross payment status

As a subcontractor, you can avoid having CIS deductions taken by applying for gross payment status when you register for CIS. To qualify for this, you must show that:

• You’ve paid your tax and National Insurance on time before
• You work in construction in the UK
• You take payments through a bank account
• Your turnover is more than £30,000 (excluding VAT and materials).

If all of these conditions apply to you, then you can apply for gross payment status during the registration process (visit the gov.uk page for more information).

 

Making CIS deductions

Before making a CIS deduction as a contractor, you need to go through the verification process:

1. Contact HMRC with the details of the subcontractor.
2. HMRC will check whether the subcontractor is registered.
3. You will be contacted with the correct CIS deduction rate to apply.

In some cases, HMRC may contact you to advise you that no deduction is required. However, if a deduction is required:

• First, calculate the total amount by subtracting VAT paid and materials or tools costs from the amount the subcontractor has invoiced. Apply the rate of CIS deduction that HMRC has advised (either 20% or 30%).
• Make the deductions and send the deducted amount to HMRC.
• Record details of the payment, material costs, and deduction amount.
• Send the remaining payment to the subcontractor.
• Complete a statement of deduction.

The CIS deduction statement should be sent to the subcontractor within 14 days of the end of each tax month.

 

Submitting returns as a contractor

As well as providing CIS deduction statements to their subcontractors, contractors must also submit their monthly CIS return within 14 days of the end of each tax month (this means the return must be submitted no later than the 19th of each month). For example, if you are making a return for the tax month from 6th April to 5th May, the deadline for this will be the 19th of May. 

To do this, you’ll need the following:

• An email address
• Your Employer Reference Number (ERN)
• Your 13-digit Accounts Office reference number

When you’ve got these details together, visit the Construction Industry Scheme (CIS) online service to submit your returns.

 

This guide has explained the Construction Industry Scheme and CIS deductions. If you’re a contractor, we offer a comprehensive CIS returns service and can support you with everything from verifying subcontractors to deduction statements and CIS returns – don’t hesitate to get in touch.