Taxation - Alan Melville

28th Edition (Finance Act 2022)

Chapter 25
Computation and payment of
the corporation tax liability

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 Overview
• Financial years
• Rates of corporation tax
• Due date of payment
• Payment by instalments
• Self Assessment
• Interest on corporation tax
• Penalties
• Rates of corporation tax from April 2023

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 Financial years
• Corporation tax rates are set for financial years which
run from 1 April to the following 31 March.
• Financial years are always identified by the year in which
they begin e.g. FY2022 runs from 1 April 2022 to 31
March 2023.
• If an accounting period coincides with an FY (or is
entirely contained within an FY) the rate of corporation
tax for that FY is applied to taxable total profits for the
period to give the tax liability.
• If an accounting period straddles 31 March, taxable total
profits are time-apportioned between FYs and charged
to tax at the rates applicable to each FY.
• In classroom discussion of example 1
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 Rates of corporation tax
• There is currently only one rate of corporation
tax for each financial year (the "main rate"). The
main rate has been 19% for several years and
remains at 19% for FY2022.
• As from FY2023, the main rate will rise to 25%
but the rate for companies with profits not
exceeding £50,000 will continue to be 19%
(see final slide).
• In classroom discussion of example 2

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 Due date of payment
• Most companies are required to pay their
corporation tax nine months and one day after
the end of the accounting period.
• But "large" companies are required to pay their
corporation tax by instalments.
• A large company is generally a company with
"augmented profits" (TTP + dividends received)
which exceed £1,500,000 for a 12-month period.
• But there are exceptions for companies which
were not large in the previous 12 months or
which have a small tax liability.
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 Payment by instalments
• A company which pays by instalments must generally
make four payments per 12-month accounting period.
• The first instalment falls due on the 14th day of the
seventh month of the period.
• The remaining instalments are due at quarterly intervals.
• Such companies must estimate their corporation tax
liability for each accounting period, since the first two
instalments are due before the period has ended.
• When the CT liability for the period is finalised, the
company will be charged interest on any underpaid
instalments but will receive interest on any overpaid
instalments.
• In classroom discussion example 4
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 Self Assessment
• In general, a company must file a tax return within 12
months of the end of each accounting period.
• Online filing is now compulsory.
• The company must self-assess its own tax liability.
• The company may amend the return within 12 months of
the required filing date.
• HMRC may open an enquiry into a return within 12
months of the date on which it is filed.
• A company which is chargeable to corporation tax for an
accounting period but does not receive a return notice
must notify HMRC within 12 months of the end of the
period concerned.

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 Self Assessment (continued)
• HMRC may make a "determination" of the amount of tax
due if a company fails to file a corporation tax return by
the required date.
• Companies are required to keep adequate records to
substantiate the figures on a tax return and must retain
these records for at least six years.
• Companies may appeal against a variety of HMRC
decisions.
• Appeals are heard initially by a Tribunal but may
progress to higher courts.

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 Interest on corporation tax
• Interest payable on overdue corporation tax is
treated as a debit arising from a non-trading loan
relationship and so attracts tax relief.
• Interest receivable on overpaid corporation tax is
treated as a credit arising from a non-trading
loan relationship and is therefore taxable.
• Example 5

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 Penalties
• Failure to notify chargeability to tax:
This penalty is expressed as a percentage of the tax
which remains unpaid 12 months after the end of the
accounting period. The applicable percentages are:
 "Deliberate and concealed" failure 100%
 "Deliberate but not concealed" failure 70%
 Otherwise 30%
• Late submission of a tax return:
 Up to 3 months late - £100 (£500 if 3rd consecutive)
 Over 3 months late - £200 (£1,000 if 3rd consecutive)
 Plus tax-geared penalties if more than 6 months late

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 Penalties (continued)

• Submission of an incorrect tax return:

This penalty is expressed as a percentage of the
additional tax payable:
 "Deliberate and concealed" inaccuracy

100%
 "Deliberate but not concealed" inaccuracy

70%
 Otherwise

30%
• Failure to keep required records:
Maximum penalty £3,000 per accounting period
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 Rates of corporation tax from
FY2023
• In FY2023, the main rate of corporation tax will
rise to 25% and a new "small profits rate" of
19% will be introduced.
• The main rate will apply if augmented profits (for
a 12-month period) are £250,000 or more. The
small profits rate will apply if augmented profits
do not exceed £50,000.
• If augmented profits are between £50,000 and
£250,000, the main rate will apply but the tax
liability will then be reduced by marginal relief.

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 Marginal relief (as from FY2023)
For a company with augmented profits which lie
between £50,000 and £250,000 (for a 12-month
period) marginal relief will be calculated in accordance
with the following formula:

F = marginal relief fraction (3/200 for FY2023)

U = upper limit (£250,000)
A = augmented profits
N = non-augmented profits (i.e. TTP)

In classroom discussion example 6

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