A few weeks ago, I sent out an email titled “I didn’t know VAT” with some quirky VAT facts. And hordes of people (well – three) have asked if there are any other fun (in the loosest sense of term) facts about tax.
- A relative newbie – Unlike Income Tax, which has been around since 1799, Corporation Tax is a relative youngster and only came into being in 1965. It celebrated its 60th birthday this year! Before that, companies were taxed under the income tax system. So, while it feels like it’s always been there, it’s actually one of the newer taxes in the UK system.
- Rates that are up and down like a yo-yo – In the 1970s, companies could be paying over 50% Corporation Tax. Fast forward a few decades, and by 2017 it was as low as 19%. Today we’ve got a tiered system of 19% for small profits and 25% for large profits, with a fiddly “marginal relief” calculation in between. It shows just how political this tax is – every Chancellor seems to have their own “favourite” rate.
- Tax returns the size of phone books – If you think your company accounts are complicated, spare a thought for the multinationals. Some of the biggest companies in the UK file Corporation Tax computations that run into thousands of pages. And am I being cynical when I say that the last page reads “£nil of tax”????
- Losses that travel in time – One quirky feature of Corporation Tax is the treatment of trading losses. Make a loss this year, and you might be able to carry it back to offset against last year’s profits (and get a refund). Or carry it forward and reduce your tax bill in future years. HMRC doesn’t usually give you many second chances, but losses are one area where you can play with time.
- Not one rate, but three – Smaller companies with profits under £50,000 pay 19%. Bigger companies with profits over £250,000 pay 25%. And in between those two figures, there’s a sliding scale where you calculate “marginal relief.” So while politicians talk about “the Corporation Tax rate,” in practice there are three, and the maths in the middle is enough to give even this Maths graduate headache.
- Innovation pays you back – The R&D tax credit scheme means that companies working on new products, processes or software can actually claim money back from HMRC. For small companies, this can mean cash in the bank rather than just a reduced tax bill. Quirky, but one of the rare times when HMRC might write you a cheque!
- Donations save you money – When individuals donate to charity, Gift Aid adds to the donation. But for companies, it works differently – charitable donations simply reduce the company’s taxable profits. In other words, giving money away makes your Corporation Tax bill smaller. A quirk worth remembering.
- Some expenses are always blocked – You might think that if you spend money “for the business” it’s tax-deductible. Not so. Client entertaining is the classic example – even if you take a customer to dinner and it wins you a £100,000 contract, HMRC says the cost of the meal is not deductible for Corporation Tax. You can’t even reclaim the VAT. A permanent “no” from the taxman.
- Pay now, file later – We’re now getting on to one of many things I will never be able to explain and one that has no logic at all. Corporation Tax is payable nine months and one day after your year-end. But the actual tax return doesn’t have to be filed until 12 months after year-end. So you’re paying your bill before you’ve officially filed your homework.
- Not everyone pays – Despite its name, not every company has to cough up Corporation Tax. Charities and some clubs or associations can be exempt. In practice, that means not all companies face the same rules. And a “company” doesn’t automatically mean a tax bill.
So, while Corporation Tax might not have gingerbread men or jaffa cakes in the rules, it’s still full of quirks that keep accountants (and HMRC) on their toes.
(And, yes – I do have some Income Tax facts ready to go. And foreign tax! To leave you on a cliffhanger for a future email…one involves flatulent cows!!)
If you have any questions, please email su*****@*********************co.uk or give us a ring on 0151 380 8084.
Many thanks
Jon