Once you set up a limited company, you become responsible for paying taxes on your company income. One such tax is Corporate Tax (CT) which is the tax payable on the taxable profits generated by any limited company.
All contractors and freelancers trading via a limited company are required to pay CT and any delay or failure to pay this tax on time can lead to penalties and even prosecution. Therefore, a complete understanding of the corporation tax is essential.
Corporation tax is calculated on the sum that is left over once business expenses, including salary, are deducted from the company’s turnover.
This depends on the profit your limited company generates; but the main rate for contractors as of Financial Year 2016/17 is 20%.
The Chancellor announced in the Summer Budget 2015 a proposal to reduce the rate of corporation tax to 19% for Financial Year 2017, set the rate at 19% for Financial Years 2018 and 2019, and reduce it to 18% for Financial Year 2020.
At the 2016 Budget, the government announced a further reduction to the Corporation Tax main rate (for all profits except ring fence profits) for the year starting 1 April 2020, setting the rate at 17%.
This tax is normally due and payable nine months and one day from the end of an accounting period.