Employment Status

Are you a contractor? If you work for someone else, it is important to know whether you are working for that person in an employed capacity or in a self-employed capacity as an independent contractor.

Your employment status will determine the charge to tax on income from your employment or self-employment. It will also determine the class of NICs, which are to be paid.

Umbrella Companies employ you for tax purposes and complete central returns for all their contractors. It's less hassle and more flexible for you but take home pay is typically less than that the limited company option.

The best option for you depends on your plans, 'one off' contract or 'contractor for life'? [Read More...]

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HMRC How to register for Corporation tax

How to register for Corporation tax

Whether you are a contractor running your own limited company or a small start-up business, you are legally required to register for corporation tax if your limited company is active. HMRC States:

  • You must tell HMRC your company or organisation is 'active' within three months of starting business activity
  • You must pay any Corporation Tax that's due on time and electronically
  • You must file a Company Tax Return online for each Corporation Tax accounting period

What is Corporation Tax?

Corporation Tax is a tax on the taxable profits of limited companies and other organisations. The key phrase is 'taxable profits', this means that corporation tax is applied after deduction of business operating costs and legal expenses such as computer equipment, business rates/rental costs etc. This guide provides a basic overview of Corporation Tax and shows you how to register for corporation tax.

Corporation Tax Registration snapshot

1. You register your company at companies house

2. Companies house pass information to HMRC

3. HMRC set up a computer record for your limited company and create a Unique Taxpayer Reference (UTR).

4. HMRC send a letter to your pmited company address with the relevant information including the Unique Taxpayer Reference (UTR). This letter includes form CT41G (Corporation Tax - Information for New Companies), check it and make sure its correct.

5. If you don't receive a letter from HMRC within 2 weeks, call them. If your automatic registration hasn't processed they may take your company details or redirect you to the manual registration process. See below guide – how to manually register my pmited company with HMRC.

6. Now that you have your Unique Taxpayer Reference (UTR), you can register for corporation tax, PAYE and other online services.

7. Register for HMRC online services - https://online.hmrc.gov.uk/registration/options

8. You will be given a Government Gateway code, KEEP IT SAFE. This code is your key to online returns and the single point of failure that, if lost, will result in late filings, fine and more hassle than you really need. You have been warned!

9. Once you have your Gateway code you can start to register for online services.

10. Access Government gateway - http://www.gateway.gov.uk/Default.aspx

11. Login to the Government Gateway – use the gateway number you received at point 8 above and enter your password.

12. You will automatically be taken to the list of online services, scroll down and select corporation tax.

13. Acknowledge message confirming service type.

14. Complete the corporation tax, note that you need your company number and Unique Taxpayer Reference (UTR).

How to manually register my limited company with HMRC

  1. Register for HMRC online services - https://online.hmrc.gov.uk/registration/options.
  2. Login to HMRC website using your government Gateway ID: https://online.hmrc.gov.uk
  3. You will be taken to 'Your HMRC Services', select 'Register for HMRC Taxes'.
  4. You will hit a send advisory warning, select 'I want to tell HMRC that I am in business and need to register for a new tax or tell HMRC that the company is now active'.
  5. You will then be shown a list of services that become available, click next.
  6. You will then be shown a list of caveats (check these), click next if none apply.
  7. You will then have a final caveat explain the necessity for separate accounts for separate businesses – click next.
  8. Select the services that you wish to apply for (Corporation Tax, Self Assessment (including Class 2 National Insurance contributions), PAYE for Employers and/or VAT). The read the terms and conditions and check to show you have read them – click next. Note: You will not be able to register for self assessment and employer options at the same time.
  9. Dependant on the services you selected, complete the remaining forms.

Corporation tax in detail

When you set up your company with Companies House, information is automatically sent through to HMRC. It is important that you understand that HMRC and Companies House are 2 very separate organisations with different filing requirements that you will be required to observe as part of your director and company obligations.

“Companies House tells HMRC when any limited company is formed and registered with them.” Even so, this does not change your legal requirements and you must ensure (that means chase up if necessary) that you complete and register for all legal returns, ignorance is not an excuse in the eyes of HMRC. If you are not comfortable with the legal requirements you should use the services of a dedicated limited company setup like Tempo. Note that if you use the Companies House Web Incorporation Service and your company is 'active' at the time you incorporate it (meaning you have started trading or receiving income), you can supply the necessary information you need to give HMRC at the same time.

HMRC will then process the information received from Companies House. This will include setting your company up on their own computer system and sending you form CT41G (Corporation Tax - Information for New Companies) which is basically your company tax bible. Keep this document safe as you will always be asked for your Unique Taxpayer Reference (UTR) when corresponding with HMRC (whether PAYE, VAT, CT or any other HMRC service). Form CT41G and your government gateway ID are the 2 most important pieces of accounting information you have – KEEP THEM SAFE.

What will I use the online corporation tax system for?

So, you have successfully registered and HMRC have sent you CT41G, you have checked the details and everything is correct so… what do you do now?

You now have all the information to start registering for online services via the Government Gateway. HMRC have received a staggering amount of negative press over the past 10 years (rightly so in most cases), however, their new online systems and approach is both fresh and effective. You will no doubt have times when you become frustrated with HMRC but overall they are becoming an effective machine, they are even pleasant on the phone these days, remarkable! Back to corporation tax...

Once you have completed the steps outlined in 'Corporation Tax Registration snapshot', you will be able to:

  • File your Company Tax Return to HMRC over the internet using HMRC's free online filing software or commercially available software (copies of relevant free software will be made available to you).
  • File your statutory, abbreviated or dormant accounts to Companies House over the internet.
  • Alter your accounting period.
  • Amend a Company Tax Return you've already submitted to HMRC.
  • View your Corporation Tax liabilities and payments.
  • Change your company or organisation's details - for example your contact address.
  • Add, change or remove your accountant or authorised agent.

Note: You must have a separate Government Gateway account (User ID and Password) for each company that you want to register with HMRC for Corporation Tax. This allows HMRC to automatically enrol your limited company for corporation tax online on successful completion of your registration.

Corporation tax summary

Seem a lot? It can be very intimidating getting to grips with HMRC website and your commitments as a limited company director. There is nothing stopping you becoming an expert in HMRC systems and understanding exactly what is required from you legally as a director. The bottom line is what do you want from your career and your company? If you feel you want to be in control, know all, understand all and have your hands firmly on the reigns then that's great, go for it.

If however it seems like there is a lot of information and legal stuff you're not familiar with and don't really want to understand (congratulations, you're the same as 99.9% of UK directors), then simply outsource it. Modern businesses are built on successful outsourcing of processes and systems. It doesn't mean you have less control, it simply means that you are sensible and wish to focus your efforts centrally on what you do best. Focus on growing your business, let the accounting nerds do what they do best, keep you compliant and up to date. Let them deal with HMRC and Companies house while you kick back with a well earned beer/wine/coffee. Looking for a starting point? Try Tempo, they're not the biggest but their rates are good and their online systems are simple and easy to use. They also adopt a personal approach and guide you through the early stages so Tempo is a good choice if you want the personal touch and personal account manager (so you just talk to one person, not a call center).

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HMRC Compliance

It's the basics... Compliance with Tax, VAT, PAYE and fiscal arrangements is mandatory for contractors regardless of whether you use an umbrella company or your own limited company.

Incredible then that there are still rogue umbrella companies and limited company accountants who expose their contractors to fraud. Umbrella Compare provides THE solution, we thoroughly vet all umbrella companies and limited company accountants that we list [Read more...].

Umbrella Compare provides a holistic overview of contracting with the aim of helping new and old contractors find the right payroll solutions. Contracting should be about focusing on the contract, not payroll, accounting, HMRC and bureaucracy.