Corporation tax is an essential part of running a business within the UK. If you are starting a new company then you may wonder whether you must register for corporation tax. Knowing when and how to register is vital to avoid any problems with HMRC i.e. His Majesty’s Revenue & Customs.
This article will explain when a business must register for corporation tax and how the process works.
What is Corporation Tax and Who Must Pay It?
Corporation tax is a tax on the profits of UK-based companies. It applies to limited companies, foreign companies with a UK branch and certain other organisations, such as clubs, societies and associations, that carry out business activities within the UK.
Unlike personal tax, individuals do not pay corporation tax on personal earnings: It only applies to business profits. Every company that operates within the UK must calculate its profits and pay the appropriate amount of corporation tax to HMRC.
Who Needs to Register for Corporation Tax?
Many companies that are being incorporated directly through Companies House can also register for Corporation Tax at the same time. Companies House typically sends an automatic request to HMRC for corporation tax registration when incorporating a company.
You will need to register for Corporation Tax separately, however, if:
- You have incorporated through Companies House but not yet registered for Corporation Tax;
- You used a company formation agent;
- You registered the company by post.
When Must I Register for Corporation Tax?
You must register your UK company for Corporation Tax within three months of starting business activities. This includes any activity such as:
- Carrying out trade, service, or professional work
- Buying and selling goods
- Providing services
- Earning interest
- Managing investments
- Receiving any other income
If your company is currently dormant (i.e. not trading or carrying out any business activities) then you do not need to register for Corporation Tax immediately. Once your company begins to trade, however, you must register within the same three-month period. Keeping HMRC updated on your company’s trading status is essential to avoid penalties such as fines.
How to Register for Corporation Tax
Finding your company’s UTR
After registering a new company, Companies House will notify HMRC of its formation. Within 14 days HMRC will send your company’s 10-digit Unique Taxpayer Reference (UTR) to your company at its registered office address.
Receiving your company’s UTR, however, does not automatically register it for Corporation Tax. You must use the UTR to take further steps and complete the process of registering the company for Corporation Tax. This can be done online through HMRC’s portal or alternative methods, if applicable.
What Information Do I Need to Register for Corporation Tax Online?
The easiest way to register for Corporation Tax is through HMRC’s online registration service. To sign in to this service you will need your company’s Government Gateway user ID and password. If you do not have these then you can create a Government Gateway ID during the registration process.
The following information is required to register for Corporation Tax with HMRC:
- Your company registration number
- Your company name
- Your company’s Unique Taxpayer Reference (UTR)
- The date on which your company began to trade.
After you have completed the registration, HMRC will verify your details within seven days. You will receive an Activation Code (PIN) at your company’s registered office address. Once you have this, log back into the Government Gateway to complete the final step of your Corporation Tax registration.
Company Annual Accounts and Tax Return
When you set up a limited company in the UK, two different reporting deadlines are automatically assigned for:
- Your first annual accounts, which are submitted to Companies House
- Your first company tax return, which is sent to HMRC
Although they are linked, annual accounts and company tax returns serve different purposes and are submitted to these two different government departments.
Annual accounts include a balance sheet showing the company’s assets, liabilities and equity at the end of the financial year. They include also a profit and loss account (income statement), which outlines the company’s financial performance throughout the year, together with detailed notes to explain the figures. These accounts are submitted to Companies House and are publicly accessible.
The company tax return, however, focuses on calculating the company’s taxable income and Corporation Tax liability. It draws from the information in the annual accounts but provides more detail to determine how much Corporation Tax is owed to HMRC. Unlike annual accounts, however, company tax returns are not publicly available: They are for tax assessment purposes and are sent only to HMRC.
Your First Company Annual Accounts
Your first accounting period begins on the day when your company is incorporated and ends on the “accounting reference date” (ARD) set by Companies House. This date marks the end of your company’s financial year and is the last day of the month in which your company was established.
Example:
If your company were set up on 4 May then the accounting reference date would be 31 May of the following year. In future years, your annual accounts will typically cover the period from 1 June to 31 May.
Your First Company Tax Return
The period covered by your first company tax return (your accounting period for Corporation Tax) cannot exceed 12 months. Therefore, if your first accounts cover more than 12 months then you may need to file two separate tax returns to cover the entire period.
Your company’s first accounts may span more than 12 months, however, if it is your first reporting period or if you choose to extend your company’s financial year by adjusting the accounting reference date.
In future years, you will typically need to file only one tax return, which usually aligns with the same financial year as your annual accounts.
How Do I check the Accounting Period for Corporation Tax?
After you have registered your company for Corporation Tax, HMRC will send you a letter confirming the dates for your first accounting period. You can also check these dates by signing into your business tax account through HMRC’s online service.
Let us consider some examples.
Your Company Started Trading on the Same Day It Was Set Up
If your company started trading on the same day it was set up, you may need to submit two Company Tax Returns: one for the first 12 months of trading and another for the remaining period covered by your company’s first annual accounts.
For example:
| Event | Date |
|---|---|
| Company set up | 11 May 2023 |
| Company started trading | 11 May 2023 |
| Accounting reference date | 31 May 2024 |
| First accounting period for Corporation Tax ends | 10 May 2024 |
| Second accounting period for Corporation Tax ends | 31 May 2024 |
After the first year, your company’s accounts and tax returns will typically cover the financial year from 1 June to 31 May.
Your Company Started Trading After Incorporation
When registering for Corporation Tax, you must inform HMRC of the date on which your company actually started trading. The process for filing – i.e. submitting – your tax returns depends upon when you register for Corporation Tax relative to your accounting reference date.
If You Registered for Corporation Tax Before Your Accounting Reference Date
In this case, you usually do not need to file a tax return for the dormant period. Instead, your first tax return will cover the period from when you started trading.
| Event | Date |
|---|---|
| Company set up | 10 May 2023 |
| Started trading | 19 July 2023 |
| Registered for Corporation Tax | 29 August 2023 |
| Accounting reference date | 31 May 2024 |
| First accounting period for Corporation Tax ends | 31 May 2024 |
After the first year, your company’s tax returns and accounts will typically align with the financial year, running from 1 June to 31 May.
If You Did Not Register for Corporation Tax Before Your Accounting Reference Date
In this scenario, you must file two tax returns: One for the period during which your company was dormant and another for the period after it started trading.
| Event | Date |
|---|---|
| Company set up | 11 May 2023 |
| Started trading | 22 July 2023 |
| Accounting reference date | 31 May 2024 |
| First tax return (dormant period) | 11 May 2023 to 21 July 2023 |
| Second tax return (trading period) | 22 July 2023 to 31 May 2024 |
After this, your company’s tax returns will align with its financial year, running from 1 June to 31 May.
Important Note on Payment Deadlines
If you need to file two tax returns for an accounting period exceeding 12 months, then you will also have two separate payment deadlines for paying Corporation Tax. To avoid penalties – i.e. fines – for late payment, make sure that you are aware of both deadlines.
When Will I First Pay Corporation Tax?
Your company must pay any Corporation Tax that it owes electronically within nine months and one day after the end of your accounting period. This payment deadline ensures that all taxes are settled well before your annual tax return filing date.
For example, if your company’s financial year ends on 31 December 2023 then the Corporation Tax payment will be due by 1 October 2024. Failing to meet this deadline may lead to interest charges or penalties from HMRC, so it is crucial to plan your payment in advance.
Consequences of Not Registering for Corporation Tax on Time
Failing to register for Corporation Tax within three months of starting business activities can lead to serious consequences for your company. HMRC imposes strict deadlines and missing them may result in penalties, interest charges and further enforcement action.
Late Filing Penalties
HMRC can issue financial penalties if you do not register within the required timeframe. The penalty starts at £100 and can increase if the delay continues. Repeated failure to meet your obligations can result in more significant fines, damaging your company’s financial health.
Interest on Unpaid Tax
If you miss the registration deadline and fail to pay Corporation Tax on time then HMRC may charge interest on any outstanding tax owed. This additional cost can quickly escalate, particularly if you delay payment for an extended period.
Potential Legal Action
Persistent failure to register for Corporation Tax or meet your tax obligations can lead to legal action from HMRC. This could include court proceedings, which may result in enforcement measures such as debt collection and/or the seizure of assets owned by the company.
Impact on Business Reputation
Compliance with tax regulations can help your company’s reputation with HMRC, business partners and potential investors. A poor compliance record, however, may affect future financing or investment opportunities, because businesses with a clean financial track record are generally seen as more reliable.
Conclusion
Registering for Corporation Tax is a crucial step in managing your business’s financial responsibilities. Ensuring compliance with HMRC deadlines will help you avoid penalties, interest charges and potential legal problems.
At Uniwide Formations we specialise in helping businesses to set up as limited companies within the UK. Although we do not handle Corporation Tax registration directly, one of our business partners is a well trusted accountancy firm who can help you with all of your tax needs. If you are looking for expert help then we can introduce you to this firm through our Introduction to an Accountant service. With our assistance you can also ensure that your company is correctly registered and compliant from day one.
