Here’s what you need to understand about contractor corporation tax
Managing tax liability is one of the important aspects for any business entity. Considering contractors to be a sole proprietor of the business, it is evident that a contractor should have a working knowledge of the tax liabilities. However, most of the contractors hire professional accountants to deal with the contractor corporation tax but it is considered as an added advantage if you understand the rules and regulations of the taxation system.
Many find tax laws to be complex and this is a fact because taxes are levied on the basis of situational analysis. A contractor who sells their services through a limited liability company would find that their tax falls into three major categories, namely corporation tax, tax payable on dividends and PAYE or National insurance. Now, you are eligible to take advantage of the preferential tax regulations if you are able to show that the contracts do not fall within the ‘intermediaries legislation’, also known as IR35.
Contractor corporation tax is the most important tax liability that applied to a limited company. It is levied on the company’s profit i.e. the money that is left over from the revenue after the business expenses are deducted. The ambit of corporation tax advocates trading profits, profit from investments, and capital gains. There are some major ground rules that the contractors should abide by in order to be a legal entity with accurate tax payments. Any missed payments or masking of profits may lead to cancellation of license with a hefty fine.
The first and foremost step to comply with the Corporate Tax regulations is that you have to register your company with HMRC. HMRC stands for Her Majesty’s Revenue and Customs and this department deals with the tax profiles of the business entities. The registration should be completed within the three months of commencement of trading and by following the exact procedures of registration. HMRC issues a CT41G form and this is the easiest form of registration with HMRC. Once you have notified the department about the existence of your company, the form will be sent to you but it may take some while. So, the wise decision would be to complete the registration as early as possible.
Calculation of Contractor Corporation Tax
The Corporation tax is calculated annually based on the Contractor corporation tax accounting period which is similar to the financial year of the company. Now, based on the calculation and deduction, the contractor can file their taxes accordingly. But it is very much required that the receipts and payments are filed accordingly which otherwise leads to probe investigation and fines. HMRC notifies the tax accounting period along with the relevant submission and settlement deadlines. Moreover, it is to be understood that the deadline to pay your Corporation tax bill is earlier than the tax return of the company and should be done accordingly. For instance, if your turnover is less 1,500,000 pound sterling, then you have 12 months to file your returns but only 9 months from the accounting period to pay any tax due.