Filing Small Company Tax Returns

Small Company Tax Returns

A company or organisation is liable to pay for corporation tax and company tax return needs to be filed with HM revenue and customs. Filing company's taxes is a bit more complicated than personal tax returns or self assessments, so it is in best interest of a company to employ certified accountant to perform this job. Filing company's tax return is not only filling up of certain forms, but actually declaring company's profit and loss and many other relevant documentation.

PAYE- Pay as you earn. This is the income tax filing that a company needs to take care of on behalf of the employees. PAYE is the system of HM Revenue & Customs which has been put in place to collect Income tax and National Insurance Contributions from employees' salary. The salaries are paid after deducting these taxes. But the responsibility of deducting these taxes lies with the employer. The company needs to pay these amounts on behalf of the employee's either on a monthly or on a quarterly basis but if it is delayed then the employer would end up paying a certain fine. Usually it needs to be filed by the 19^th or the 22^nd of the month for electronic payments to HMRC. In case if the monthly payment is calculated to be less than £1500, then the company can pay a total amount on a quarterly basis.

PAYE is applicable to all the income of an employee which is received by him as a result of working in the company itself. These include the following:

salary and wages
overtime and odd shift allowances
incentives and bonuses
certain expenses allowances paid in cash- for example a travel or meal allowance
Statutory Sick Pay
Statutory Maternity, Paternity or Adoption Pay
lump sum and compensation payments - like severance payments - unless they're exempt from tax
Cash value of certain non-cash items like vouchers, shares or premium bonds
Other benefits like company cars, medical insurance etc

PAYE can also be used to deduct the following from the salary of an employee:

student loan repayments
employees' pension contributions
payments under an attachment of earnings order
repayment of a loan you've made to an employee

At the end of each tax year, the employer needs to hand out a paper document of a summary of the individual employee's salary and deductions on the form P60.

Businesses must keep their records for no less than five years after the relevant filing date.

PAYE forms and deadlines:

There are several forms that a company needs to file for PAYE. Some of the important and commonly used ones are as follows:

Form P45. This is the form to start with when new employees join and who were formerly working with another company. Their previous employer would have given them a P45 based on which the employee's tax calculation will start. Once any employee leaves, the company needs to handover a P45 to him.
Form P60. This is a summary form which encapsulates all the earnings and the taxes that an employee has paid throughout the year. This needs to be given by the company to every employee by the end of the financial year.
Form P46. In case if the employee can not furnish a P45, he would need to complete a P46 which is a declaration of the employee's personal details, including their National Insurance number, work history and any student loan details. Also one needs to put down the details about the PAYE scheme and the tax code you're using for them.

Start of tax year forms

Forms P9(T), P9X. This form is to keep a track of the tax codes to use for employees for the financial year which usually starts from 6^th April.

Form P7X. This form is to capture the changes that the employee would need to make to the employees' tax codes due to effects of the budget. These changes usually come into affect from May.

Payroll administration forms

Form P11 Deductions Working Sheet. P11 is used for each employee to record details of their salary and deductions throughout the year.

Form P14. This form is completed at the end of each financial year for each employee whose earnings reached the National Insurance Lower Earnings Limit. This is basically a summary form for P11. Since P11 is a monthly working sheet, P14 is a yearly summary to collate information on one single form for each employee. The deadline for this form to be sent to HMRC for the last financial year is 19^th May.

Form P35 Employer Annual Return. This is a detailed list of all employees in the company with details of their income tax and NICs that has been deducted throughout the year. The deadline for this form to reach HMRC is also no later than 19 May.

If a company has more than 50 employees, the company can opt to file the taxes (P14 and P35 forms) online to HM revenue and customs. Filing online taxes have many advantages like filing dates and payments made faster like we have already seen before.

In addition to income tax returns, the company also would need to pay for Value Added Taxes if the company's turnover is more than Value Added Tax threshold which is currently at £68,000. Registering for VAT should always be done whether or not one is eligible to pay for VAT.

Corporation Tax:

All registered companies including clubs, societies and associations are liable to pay corporation tax which is calculated on the profits of the company.

There are two main sources of corporation tax:

Profits from taxable income such as trading profits and investment profits. This does not include dividend profits and they are taxed in a different manner.
capital gains- chargeable monetary gain acquired by selling any asset by a company

In the UK, the following are the liable parties to pay for corporate tax:

limited companies built in the UK
foreign-based companies with a branch in the UK- This is treated as a permanent place of business in the UK and hence any profits attained out of any UK business is taxable for corporate tax
members' clubs, such as social clubs, sports clubs and holiday clubs
societies, like friendly societies and provident societies
associations, like housing associations and trade associations
co-operatives
unincorporated associations
groups of individuals carrying on a business that is not a partnership
charities

Procedure for filing corporation tax:

First of all, as a company, it needs to declare to HM Revenue & Customs that it is liable to pay corporate tax. If this is the case then the following needs to be carried out:

For new company declaration, Form CT41G needs to be filled and sent to HMRC.
If the company was active before and has become active again after being dormant for a certain period of time, one needs to declare this situation to HMRC using form CT204 for Active company
At the end of the financial year, pay corporation Tax on any profits that are taxable. Filing corporate tax needs to be completed within nine months after the end of the financial year.
File a Company Tax Return within 12 months of the end of your company or organisation's Corporation Tax 'accounting period' - usually the end of your financial year

Even if the company is not active in its business and has not met the above specified timelines for filing corporate taxes, there can be a penalty charged to the company. In case if a company has gone dormant and is not active in its business, it is advisable to declare the situation to Corporation tax office as soon as possible. From this point, HMRC would stop treating the company as an active business.

One point to note is that the timelines for paying corporation tax is before the payment of company tax return. Also, the above deadlines are for the small or medium companies whose turnover is less than £1.5 million. In case if the turnover is more than £1.5 million, then the payment for corporation tax can be done in instalments but within 9 months of financial year end.

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