Corporation Tax Compliance

Corporation tax compliance is a key responsibility for every company by helping to ensure that businesses contribute fairly while also encouraging proper record keeping and accountability. The rules are complex and can feel onerous for many business owners however, especially when accounting periods don’t align neatly, or when HMRC raises questions about a return. Professional guidance is essential to ensure your corporation tax compliance is managed smoothly and efficiently.

This article explains the main aspects of corporation tax compliance, from how accounting periods are defined, through to filing, enquiries, record keeping, and what happens if things go wrong.

Accounting Periods and Periods of Account

A company’s accounting period for corporation tax is usually 12 months long. Company law, however, allows accounts to be prepared for up to 18 months. When accounts are prepared for more than 12 months, this period (known as the period of account) must be divided into two accounting periods for tax purposes:

• The first accounting period covers the first 12 months;

• The second accounting period covers the remaining months.

  
  

This ensures that each accounting period is no longer than 12 months, as required for tax purposes.

For example, if a company prepares accounts for the 15 months ending 31 March 2025, the tax calculation will be split into:

• One accounting period from 1 January 2024 to 31 December 2024 (12 months);

• Another accounting period from 1 January 2025 to 31 March 2025 (3 months).

  
  

Profits, allowances, and other items need to be correctly allocated between the two periods.

Preparing the Corporation Tax Return

Step 1: Adjusting Trading Profits

Company accounts often include expenses that are not deductible for tax purposes (such as client entertaining or depreciation). To arrive at the tax-adjusted trading profits, these expenses must be added back. At the same time, certain income items may need to be removed, such as bank interest or property income, as they are taxed under different rules.

Once adjustments are made, the total profit for the period of account is split between the two accounting periods if longer than 12 months. This is normally done on a time-apportioned basis, unless the circumstances suggest another fairer method.

Step 2: Calculating Capital Allowances

Companies can claim capital allowances on qualifying business assets. Separate calculations are required for each accounting period, taking into account when assets were bought or sold.

For a second, shorter accounting period, some allowances (like the annual investment allowance) are time-apportioned. Others, such as first-year allowances, are given in full and are not time-apportioned.

Step 3: Allocating Other Income

Not all company income comes from trading. Non-trading profits, such as loan relationships (interest income or expenses) or rental income from property, are usually spread between accounting periods based on the time they arose.

Special care is needed if income starts part-way through a period. For example, if a company begins receiving rental income in March, only the portion relating to March is allocated to that accounting period.

Capital gains on company assets (termed ‘Chargeable gains’) are treated differently — they are allocated according to the actual date of disposal of the asset. For property this is usually the date contracts are exchanged.

Charitable donations made by the company are allocated based on the actual date of payment.

Step 4: Calculating the Corporation Tax Liability

After all income and gains are allocated, and all reliefs are deducted, the company’s taxable total profits (TTP) are calculated. Two separate tax computations are required if it is more than a 12 month accounting period.

Dividend income is generally exempt from corporation tax, but it is added to taxable total profits to determine whether the company is required to pay tax in instalments. Dividend income is allocated to the accounting period in which it was received.

Filing the Return

The corporation tax return (CT600) must be submitted online. Even if the accounts cover more than 12 months, the filing deadline is the same for both returns, 12 months from the end of the period of account. This means that while two returns must be filed for a period of account more than 12 months (one for each accounting period), they both share the same filing date. However the payment date for each accounting period will be different; payment is due 9 months and 1 day from the end of each accounting period.

Timely filing and payments are important. Late returns can trigger penalties, and late payment of tax can lead to interest charges as well as penalties.

Amending a Return

Sometimes, mistakes are made or new information comes to light after a return has been filed. In such cases, both HMRC and the company can make amendments.

• HMRC may correct obvious errors, such as arithmetic mistakes or missing figures. HMRC have nine months from the actual filing date to amend the return.

• The company can make its own amendments, such as adjusting a claim for capital allowances or updating the treatment of losses. The company has 12 months from the due filing date to amend a return.

  
  

HMRC Enquiries

HMRC has the power to check company tax returns through enquiries. These are used to ensure that returns are complete and correct.

Enquiries may be opened for several reasons:

• Risk factors such as low profit margins or unusual claims;

• Campaigns targeting certain industries;

• Information received from third parties;

• Random selection.

There are two main types of enquiry:

• Full enquiries, which review the return as a whole.

• Aspect enquiries, which focus on specific items, such as the calculation of a capital gain or the treatment of a particular expense.

  
  

Companies can reduce the likelihood of an enquiry by providing clear disclosure. For example, if a company claims significant professional fees, it helps to explain whether they relate to allowable legal advice or to disallowed activities such as raising capital. Providing this detail upfront shows transparency and can prevent questions later.

Record Keeping

Accurate record keeping is essential for corporation tax compliance. Companies are required to maintain detailed records of their income, expenses, and transactions. These records should be kept for at least six years from the end of each accounting period.

If an enquiry is opened, records must be kept until the enquiry is formally closed, even if this is longer than six years.

Missed Returns and HMRC Determinations

If a company fails to file its corporation tax return, HMRC can issue a determination. This is an estimated assessment of the tax due. This figure is often set high to encourage prompt compliance.

The company cannot appeal against a determination. The only way to correct it is to file the outstanding return. Acting quickly is therefore crucial to avoid paying more than is actually due.

Discovery Assessments

Even after a return has been filed, HMRC can raise a discovery assessment if it later discovers that tax has been underpaid. This can happen if:

• Income or gains were missed;

• Reliefs were claimed incorrectly;

• Information was not fully disclosed.

The time limits for discovery assessments depend on the circumstances:

• Normally within 4 years of the accounting period;

• Extended to 6 years if the error was due to carelessness;

• Up to 20 years if the error was deliberate.

Why Corporation Tax Compliance Matters

Corporation tax compliance is about more than avoiding penalties. Done properly, it:

• Ensures your company pays the right amount of tax, no more and no less;

• Provides peace of mind that you’re fully compliant;

• Builds a positive track record with HMRC;

• Allows you to focus on growing your business, rather than worrying about tax issues.

How We Can Help

Our role is to take the complexity out of corporation tax. We:

• Prepare and file your returns accurately and on time;

• Aim to maximise reliefs and allowances available to your business;

• Deal with HMRC on your behalf, whether for routine compliance or in response to an enquiry;

• Provide advice tailored to your company’s circumstances, helping you stay compliant while planning effectively for the future.

Speak to an Expert

If you have questions about corporation tax compliance or want expert support to manage the processes, we’re here to help. Contact us today to discuss your business needs and how we can make compliance simpler and stress-free.

Authored by: London Team