UK Fact-File Part 2:
Individual Business Domestic Taxation

2.8 UK Business Profit Retention

Rules governing the retention of profit in formal business structures

Corporation Tax is payable by limited companies, on their profits, separate from the personal income tax liability of any directors and employees.

The rate for small companies is 21% (although this will drop to 20% from April 2011) for revenue up to GBP300,000, 21% to 28% for revenue between GBP300,000 and GBP1.5m (as a result of Marginal Rate relief – see below for more detail), and 28% for revenue over GBP1.5m. The 28% higher rate for larger companies will also drop one percentage point to 27% in April 2011, with further annual incremental cuts announced by the government, designed to eventually bring the rate down to 24% by 2014.

Marginal rate relief is available for companies which fall between the thresholds for the two corporate tax rates, effectively providing a sliding scale tax rate for such organisations. Full detail on the rates of relief can be found on the HMRC website: http://www.hmrc.gov.uk/ct/forms-rates/claims/marginal-rate.htm .

From April 2011, corporate tax return forms (Form CT6100) must be submitted online by most companies, from accounting periods ending after March 31, 2010.

Companies involved in the exploration and extraction of oil and gas in the UK and the UK Continental Shelf have their profits ‘ring-fenced’ by HMRC rules. This is to prevent losses a company might suffer from other (UK or global) activities reducing the taxable profits made specifically from oil and gas extraction operations. However, this is unlikely to be of interest to the small business person, or self-employed entrepreneur!

Once a limited company has paid corporation tax that may be due on its profits, it is free to retain the taxed profits, and there are no rules which forcibly attribute those profits to directors or shareholders, as is the case in some countries. Loans to directors and the provision of benefits for them may however be treated as taxable benefits.