Corporation Tax
  • 01 Apr 2016

Rates

All sizes of company in the UK pay corporation tax at the main rate of 20% (except in the oil and gas sectors). The main rate will drop to 19% on 1 April 2017 and to 17% on 1 April 2020, making it the lowest rate of corporation tax amongst the G20 countries.

Payment dates

Companies with profits over £1.5 million pay corporation tax in quarterly instalments starting in the seventh month of the accounting period. Those companies or groups with profits over £20 million will see the timing of those instalments accelerated by four months, but not until 2019. Directors’ loans When a company which is controlled by its directors, or by five or fewer shareholders, makes a loan to a director or shareholder, it must pay an extra corporation tax charge set at 25% of the loan. That corporation tax charge is only payable if the loan is outstanding nine months after the year end and it can be reclaimed from HMRC when the loan is repaid.

This corporation tax charge will rise to 32.5% for loans made on and after 6 April 2016. The change aligns the tax payable in respect of a loan from a company with the tax payable on a dividend paid to a higher rate taxpayer, although the tax on the loan can be reclaimed by the company, whereas dividend tax paid by an individual can’t be reclaimed.

Losses

Companies who make losses may change their trade in order to achieve a profit. In some cases the losses made in early periods can become trapped and unusable, as tax law prevents a loss from being set against profits from a different trade.

From 1 April 2017 such restrictions on the use of losses will be lifted. A company will be able to carry forward losses to use against profits made from any activity. This is a very welcome change, particularly for small businesses with more than one activity.

Companies with profits over £5 million will be able to relieve losses against only 50% of their profits; the £5 million threshold will apply across a group of companies. Banks will be restricted to setting losses against 25% of their profits with effect from accounting periods starting on and after 1 April 2016.

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