Small Company Tax Returns
This is a complete guide to getting through your small company tax return questions and to help you calculate the taxes your company will pay this accounting period. All items that are pertinent to a small company are highlighted here. It is recommended that you read it together with the company tax return form guide or an online tax return form for better understanding.
It is important to remember that the box nos. in the forms are not necessarily in a mathematical order but are usually similar whether you fill in a paper return form or an online one.
Calculating the amount of corporation tax you have to pay
In order to calculate the total amount you need to pay in corporation tax, you can use the Company Tax Return Form CT600, whether the full, short or the online version. To find out the total amount for any given accounting period, consider the pre-tax loss or profit figure from your company's account and alter it to get your taxable profits termed as the profits chargeable to Corporation tax. Most of the required calculations can be automatically done for you with an online small company tax return form.
Calculating your professional and trading profits for small company tax
Once you have the pre-tax figure of profit from your company's accounts:
- Add any depreciation charges from the accounts of your company
- Subtract any capital allowance amounts and add back balancing charges
You can put this final amount in box no. 3 on the form.
All the particulars of your balancing charges and capital allowances are to be put in box nos. 105-114 and box no. 172. These are found in the segment "Charges and allowances included in calculation of trading profits or losses". Any losses that you have carried forward from earlier accounting periods are to be mentioned in box no. 4. Now deduct the amount in box no. 4 from the amount you put in box no. 3 and mention the resulting amount in box no. 5. This total figure denotes the company's total "trading and professional profit".
Calculating the balancing charges and capital allowances
With capital allowances, you are able to write off the costs of the capital assets in your company like computers, machinery, vehicles or equipments against the "taxable profits" for the small company tax return.
Balancing charges come about when you stopped using, gave away or sold any of the capital items from your business. This amount increases the amount of profits that are taxable.
What constitute chargeable gains?
If you have sold or in any other manner disposed of any capital items from your business for more amount than what you had originally paid for them, you make a capital gain. This capital gain could be a taxable amount.
If you have to pay corporation tax for your small company, you are not liable to pay for capital gains taxes separately but you pay taxes on your chargeable gains. When you calculate and fill in your small company return, you need to calculate the net chargeable gains and then add it to the net income of the business.
How to include chargeable gains on your small business tax return
If you have any chargeable gains, add the total amount in box no. 16. Now, enter any capital losses carried forward from prior years and from the current period in box no. 17. The figure here can only be equal to or less than your gains mentioned in box no. 16. Now, deduct the amount in box no. 17 from the amount in box no. 16.
If the resultant figure is in negative or is a zero, fill it in box no. 18. This makes the net chargeable gain and this cannot be a negative or minus figure. If you have capital losses in this financial period, you cannot deduct those from your current profits. In this case you leave both box nos. 16 & 17 vacant and enter the amount of your company's capital loss in box no. 131.
Now you can carry forward these capital losses against any future profits in the coming accounting years. This amount can then be added to box no. 17 of any future small company tax return form. These can be carried forward indefinitely.
Profits before deduction and relief from taxable profit
The "net trading and professional profits" amount in box no. 5 can be added to your "net chargeable gains" amount in box no. 18; add other figures of income mentioned in the box nos. in-between and put this new figure in box no. 21. This figure is referred to as the profits before other deductions and relief.
HMRC uses these terms "reliefs" and "deductions" for a variety of losses or expenses that can be deducted from the company's profits before calculating the amount of corporation tax to be paid. This is unlike the "credits" and other reliefs that can be directly deducted from the payable taxes.
Corporation tax rates
Depending on the taxable profits of the company, there are two corporation tax rates:
- The lower rate - this is currently at 21% and is termed as the "small companies" rate even when it is calculated depending on the taxable profits and not the size of the company.
- The upper rate - this is currently at 28% and termed as the full or main rate.
There is another scale between these two upper and lower rates called the marginal rate relief:
- If the taxable profits of your company are greater than an amount of £300,000 which is the maximum lower rate currently
- Or if the taxable profits are no greater than an amount of £1,500,000 which is the minimum full rate currently
Then your small company is liable to claim the "Marginal rate relief" and pay less small company tax!
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"You have stated in the section "Calculating the amount of corporation tax you have to pay" In order to calculate the total amount you need to pay in corporation tax, you can use the Company Tax Return Form CT600, whether the full, short or the online version. To find out the total amount for any given accounting period, consider the pre-tax loss or profit figure from your company's account and alter it to get your taxable profits termed as the profits chargeable to Corporation tax. You said ALTER IT, you cannot be serious, you have to ALTER this to get it right - you say nothing about the CT600 calculating only at the main rate as there is no opportunity to get it use the smaller companies rate (that I could find)."