Corporation Tax for Companies
Corporation Tax is charged on all taxable profits of UK tax resident companies and on those profits of non-resident companies that are attributable to their carrying on a trade in the UK through a branch. The rates apply to profit, whether income or capital gains. The method by which taxable revenue and deductible expenditure are assessed differs from the rules applicable to individuals.
There are currently two rates of Corporation Tax, depending on the company or organisation's taxable profits:
• the lower rate - known as the 'small profits' rate
• the upper rate - known as the 'full' rate or 'main' rate
There is also a sliding scale between the lower and upper rates known as 'Marginal Relief'.
The rates of corporation tax since 1st April 2012 are as follows:
• The small profits rate, applying where profits are between £0 and £300,000, is 20% (remaining unchanged since April 2011)
• The fraction used in smoothing the difference between the small profits rate of 21% and the main rate of corporation tax (marginal relief) is 1/80 (was previously 3/200)
• Marginal relief applies to profits between £300,000 and £1,500,000 tapering out the benefit of the small profits rate
• The main rate of corporation tax is 24% on profits of over £1.5m for financial years starting on 1 April 2012 (from April 2011 was 26%)
• The rate for companies with ring fence profits (income and gains from oil extraction activities or oil rights in the UK and UK Continental Shelf) is 19% for financial years starting on 1st April 2011 and 2012 and the ring fence fraction is 11/400. The main rate of corporation tax for companies with ring fence profits is 30 per cent for financial years starting on 1 April 2011 and 2012
A special rate of 20% applies to unit trusts and open-ended investment companies. Groups of companies can divide the profit limits between the members of the group. This rate has remained unchanged for several years.
The corporation tax liability takes into account the overall profit of the company as well as any dividends that have been made over the period.