UK Corporation Tax for start-ups: what you need to know

Corporation Tax is a critical element that start-ups need to be aware of when starting their new venture.

Corporation Tax is something all limited businesses must report and pay.

Understanding Corporation Tax can go a long way to setting a solid financial foundation for your business.

Below are some key points in helping you understand Corporation Tax for your start-up:

Registering for Corporation Tax

As soon as you set up your company, you are required to register with HM Revenue and Customs (HMRC) for Corporation Tax. You have three months from the date you start trading or become active to inform HMRC.

Failure to do so may result in penalties. Registration can be completed online through the HMRC website, where you will receive a Unique Taxpayer Reference (UTR) for your company.

Corporation Tax rates

The UK Corporation Tax rate has recently been subject to change. Previously, a flat rate of 19 per cent was paid by all companies affected.

As of April 2023, the flat rate was removed, making Corporation Tax a little more complex to navigate.

Companies that earn £50,000 or less annually will not be affected thanks to the Small Business Rate Relief and will still pay 19 per cent. However, any companies that earn more than £250,000 are now charged at a rate of 25 per cent.

The waters are further muddied for those companies who earn between £50,000 and £250,000, as they will pay a tapered rate, depending on how much profit they earn.

Companies in this bracket are entitled to Marginal Small Companies Relief (MSCR), which tapers the effects of the increased rate.

The MSCR uses a formula to work out the rate of Corporation Tax based on the profits of a company in the £50,000 to £249,999 bracket, which applies a marginal relief rate of 26.5 per cent to calculate a final effective rate of tax.

Accounting period and deadlines

Your Corporation Tax accounting period is usually 12 months long and typically aligns with your company’s financial year.

You must file your company tax return (CT600) and pay your Corporation Tax bill within nine months and one day after the end of your accounting period.

Keeping accurate financial records is crucial, as you will need to calculate your company’s profits and tax liabilities accordingly.

Reliefs and allowances

The UK Government offers several tax reliefs and allowances that benefit start-ups. Some key examples include the below:

• Research and Development (R&D) Tax Credits – Start-ups engaged in qualifying innovative R&D projects may be eligible for R&D tax credits. This relief allows companies to claim a higher percentage of their R&D expenditure against their Corporation Tax bill.
• Capital Allowances – When you purchase assets for your company, such as equipment or machinery, you may claim capital allowances to deduct the cost of these assets from your taxable profits.
• Patent Box – If your start-up holds a qualifying patent, you can apply for the Patent Box relief, which enables you to pay a lower rate of Corporation Tax on profits taken from patented inventions.

The above are just a few of the key tax reliefs that the Government can offer, but many more are available.

Understanding Corporation Tax is vital when it comes to running a successful start-up in the UK.

By registering your company promptly, staying informed about rates and deadlines, and taking advantage of reliefs and allowances, your start-up will be in a brilliant position to move forwards.

If you need any further advice on Corporation Tax for your start-up, contact us today.