Taxation is an important part of any governmental strategy with the idea behind taxation to gather enough resources that can then be used for the welfare of the masses. Governments ensure that the people have all the necessities of life like water, electricity, gas, security, hospitals etc without any problems and takes taxes from the people in order to arrange these services. A single person can’t ensure his security, build himself a hospital, generate electricity and gas for his house and arrange a constant water supply without having an overarching authority to help him out. This is why the people combine to give taxes and the overarching authority i.e. the government uses the taxes to provide the people with these resources.
However, it’s important that the taxes imposed on the masses are in accordance with their ability to pay them. You can’t expect someone who only earns £100 a day to give £50 of that to the government but you can expect someone who earns£ 500 a day to give £50 of that to the government. This is why governments introduce different types of taxes so that people who are more privileged contribute more while people who don’t have the same privileges are not overburdened. This is the reason why corporate tax was introduced in the first place some 50 years ago with the idea that corporations who post huge profits should be taxed on an entirely different scale to individuals and small traders who can only dream of the numbers generated by corporations.
Not every registered corporation or company that does business is liable to paying corporate tax. The corporate tax laws are designed to ensure that only those corporations which earn a certain amount are taxed under this category. The corporate tax is actually a percentage of the taxable profits generated by an organization or company or corporation.
So, any company or corporation that operates on a commercial level and posts a profit on the balance sheet is liable to paying corporate tax. Unincorporated organizations are also liable to paying corporate tax. Online businesses are also liable to paying corporate tax. This is why it is important for online businesses to operate in a very professional manner so that they are never found wanting on non-payment of taxes. The use of merchant accounting is recommended for this very reason as merchant accounting is the cornerstone of online business.
As already stated, not every corporation is liable to paying corporate tax. The corporate tax standards dictate that any corporation or business which does not post a profit won’t be liable to paying corporate tax. It’s obvious that when a company isn’t generating any profit, the company won’t have to pay the government any corporate tax. It is important to remember though that the company may have to pay other sorts of taxes if it comes under the net of those taxes.
So, businesses or corporations who are exempt from paying corporate tax include:
|Individual traders who do businesses on their own without being a part of any sort of partnership do not come under the corporate tax bracket.|
|Limited Liability Partnerships, local and regional associations, and local authorities are also not liable of paying corporate tax even if these partnerships, associations and authorities post profits.|
|Corporate tax avoidance is possible for any organization or corporation that operates as a business but all of its profitable proceeds are used for charitable purposes.|
Corporate tax is an annual tax which means that it is payable on the profits generated within one whole year. The time frame for which the profits are noted is known as the fiscal year and the fiscal year for corporate tax starts from the 1st of April and ends on the 31st of March. So, the annual profit earned by the corporation or company during this time period would be taxed according to the corporate tax rates.
There are two brackets when it comes to corporate tax and the brackets are decided on the basis of the net profit posted by an organization or corporation.
|A company or organization which earns a net profit of 1.5 million or above would have to pay 30% of its profit to the government under corporate tax.||Any company or organization which earns a net profit of 300,000 or less would have to pay 19% of its profits to the government under corporate tax.|
Just like businesses tend to lower risks by getting all sorts of business insurance, it is important for businesses to be very precise about their documentation of profits so that they are never held liable for not completely paying their taxes.
Corporations often suffer from mistakes during the filing of corporate tax since there are numerous forms and calculations and other legal formalities involved. This is why companies should look to introduce highest standards of corporate governance so as to bring transparency in their operations and to ensure that professionals are hired for the purpose of dealing with tasks like the filing of corporate tax.
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