The definition of being active for corporation tax purposes is not necessarily the same as that used by HMRC in relation to other tax areas such as VAT, or by other government agencies such as Companies House. A corporation tax accounting period is also different from similar terms used by other HMRC tax areas (such as VAT accounting periods) or other government agencies (such as Companies House accounting reference periods).
The company or organisation’s Corporation Tax accounting period is normally 12 months long and matches the company’s 12-month financial year which begins and ends with the dates covered by the statutory accounts that are filed at Companies House.
In some instances the Corporation Tax accounting period won’t be the same as the company’s financial year if, for example:
- The accounts cover a period of more than 12 months – such as if the newly-formed company is preparing its first accounts to cover a period of more than 12 months, or the existing company changes its financial year end;
- The company has been dormant and once again starts to carry on business activity – here the Corporation Tax accounting period may start on a different day from the start of the financial year.
For corporation tax purposes a company is considered to be active when it is:
- Carrying on a business activity such as a trade or professional activity;
- Buying and selling goods with a view to making a profit or surplus;
- Providing services;
- Earning interest;
- Managing investments;
- Receiving any other income.
Any tax payable requires a tax reference which can be obtained by submitting a form 64-8 which is used to enter agent authorisation details on a taxpayer or claimant record. It doesn’t register the business with HMRC so in order for it to be processed, a client record with a Unique Taxpayer Reference (UTR) must already be in existence or a registration form submitted along with the 64-8 and the tax reference asked for. The process can take a few weeks.
Note: Ground rent is not part of the variable service charge and because it is not subject to the s42 trust provisions it does fall within the scope of corporation tax,