What is the Corporation Tax Rate?

If you need to work out how much corporation tax your company’s legally obligated to pay the government, keep reading. Prestige Tax and Trust Services asks: what is the corporation tax rate?

Tax rate

You can work out corporation tax by applying a corporation tax rate to your taxable profit. You need to know which rate applies to your firm if you’re going to work out how to pay corporation tax for the current financial year.
At present, there are two rates of corporation tax for the financial year which began on 1st April 2015. There is the small profits rate of 20% which is applied to profits of £300,000 or less, and the main rate of 21% which is applied to profits of more than £300,000.

UK Chancellor George Osborne recently announced in the emergency summer budget that the 20% rate will be lowered over the next few years. It will be slashed to 19% on 1st April 2016, and will hit 18% by 1st April 2020.

Tax thresholds

It’s important to note that these rates apply to the whole duration of your firm’s accounting year. Therefore, these thresholds reduce in line with your accounting period. Let’s say for example, that your firm’s accounting period was six months. The threshold at which you pay 20% corporation tax would fall to £150,000.

The rules are also slightly different for associated companies which have a shared tax threshold. For instance, say that your associated company owned three businesses. You would need to divide the £300,000 limit by four, which means that your firm would have a small profits threshold of £75,000 for each business.

Different rates

Finally, we should note that different rates may apply to your taxable profits. In this instance you would need to calculate how many days each rate applied to your business then use this to determine how much corporation tax you owe for each period.
Let’s say that your accounting period spans 1st March 2014 to 28th February 2015. This means that you would need to apply the rate for the financial year which began on 1st April 2013 for 31 days, and the rate for the financial year which began on 1st April 2014 to the remaining 334 days.

Prestige Tax and Trust Services

There are many issues that business owners need to deal with and corporation tax is just one of them. You also need to think about what’ll happen to you company when you pass away. This is why you should utilise Prestige Tax and Trust Service’s Business Protection service if you want to ensure that your loved ones inherit your company when you die.

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