A Guide on Corporation Tax for Beginners

You'll enjoy it as well. Why? Because corporation tax is the sweetie of taxes, and you'll be paying it with glee by the end of this scrawl.

Have I gone completely insane? Definitely not. Continue reading to be wined, dined, and eventually fall in love with the most unlikely of things — a tax.

What is Corporation Tax and How Does It Work?

The tax due when your company makes a profit from its trade activity is known as "corporation tax." Corporation tax applies to a wide range of entities, including limited liability firms, charities, clubs, co-ops, and just about any other legal entity you can think of.

What Do You Mean When You Say "Taxable Profits"?

taxable profits include not just normal trading profits but also profits from investments and capital gains. Dividend income, however, is an exception to the norm, as it is subject to its own set of rules.

Placement

Location If your business is registered in the United Kingdom, you'll have to pay tax on any operations that take place there. It didn't matter where the sales were made. Have you ever sold a tractor to a Mongolian farmer who is half-American and half-Iranian? It makes no difference; any profit is still subject to taxation in the United Kingdom.

The Mechanics of Corporation Tax Payment

Here's where HMRC comes into play. And until now, everything was going swimmingly. HMRC must receive your corporate tax bill, as well as supporting paperwork detailing how you came up with such a pitiful sum.

One thing to remember is that HMRC resembles a severe old school headmaster from the 1940s (think cane, monocle, ridiculous hat, and an alarming zeal to punish). You must pay your corporation tax payment within 9 months and one day of the end of your company's accounting firms tax year. You must also file your accounts within 12 months of the conclusion of your fiscal year. The electronic filing and payment of your corporation tax is required.

I've gotten rid of all the scary stuff. Now, let me explain why corporation tax is actually rather reasonable.

Why Is Corporation Tax The Gentleman Among Taxes?

The good news is that as a corporation, you have significantly more flexibility in lowering your tax cost than an individual person paid by PAYE ever could.

If you're unsure whether starting a business is beneficial as a novice, consider this one precious molecule of wisdom:

A corporation pays its expenses first, then pays corporation tax on any remaining earnings. An employee is taxed first, they must pay for their costs from the remaining funds.

Corporations are never taxed on their gross revenue or income. Employees on the PAYE system are. That is why, in terms of taxes, corporate tax is a screamer – especially when compared to personal income tax. It is for this reason that the world's wealthiest, wealthiest, and most powerful people all own and run massive enterprises. It's also why, for tax purposes, they're often paid on cleaner salaries in the corporate accounts.