A corporation tax is a tax that can be paid from all the taxable profits of a company no matter where in the world was this profit generated. This tax is calculated and paid annually based on the corporation tax accounting period which is usually the same as your company’s financial year. If say you are operating through a limited company, then you will need to pay the corporation tax based on your taxable profits.
The Corporation Tax Period
The Contractor Corporation Tax accounting period is usually subject to variation and this can change every year. This is usually your company’s 12-month financial year which will also be the dates covered by your company’s annual report and the accounts that you have to submit to Companies House. Sometimes your corporation tax accounting period does not match your business’s financial year especially if you are newly formed.
Your corporation tax accounting period is shorter than 12 months or it can be longer. This is why your financial year will end up being longer than 12 months. Then, you will have to submit two company tax returns since you will not have two corporation tax accounting periods. This will only be a problem in the first year for most companies but it will be updated and corrected for the succeeding years.
How To Avoid HMRC Penalties?
The HMRC will usually apply automatic penalties to different companies who deliver their tax return late or after the end of their corporation tax accounting period. If you encounter this problem, you should inform HMRC as soon as possible for you to avoid incurring any fines or penalties. Always remember that extension to deadlines is only granted to exceptional circumstances.
The Independent Contractor Tax
If you are an independent contractor or you have a business for yourself and you provide services to other business, then you are considered as a ‘self-employed.’ You will be required to file an annual return and pay the estimated tax quarterly. You must pay both the self-employment tax and also the income tax. Just remember that anytime the the word “self-employment tax” is used, this means that it is the Social Security and Medicare taxes; not any other tax.
Self-Employed: Your Tax Obligations
Before you start paying your self-employment tax and income tax, determine first the figure for your net profit or net loss from your business. You can do this by subtracting your expenses from the income of your business. If say your expenses are lesser than your income, the difference would be the “net profit.” If your expenses are more than your income then the difference is called the “net loss.”
Always remember that you have to file an income tax return if your net earnings as a self-employed contractor reached $400 or more. If for example, your net earnings are lesser than this amount then you still have to file an income tax return and be able to meet the necessary requirements for the Form 1040.