Micro Entities – HMRC tax definitions and CATO

The Company Accounts and Tax Online, abbreviated as CATO, a  project that had commenced to digitise and simplify Corporation Tax filing for small businesses known as ‘Micro-Entities’ which met a desired set of pre-requisites and conditions. These criteria include turnover and the number of employees, among other contributing factors.

HMRC tax definitions and CATO

The project is a joint project with Companies House – allowing users to file their accounts and Corporation Tax Returns to both HMRC, referred to as, “Her Majesty’s Revenue and Customs (HM Revenue and Customs or HMRC) and Companies House, in one single filing.

Micro-Entity is a very small company or LLP. Microentities may be able to produce a much simpler set of year-end accounts for their members and provide less information for the public record. It is basically a simple compilation of accounts with the easier filing of returns.

Micro-entities, in many instances, by and large, are owner-managed. Statutory financial statements of micro-entities, therefore, may not need to facilitate communication between shareholders and management in relation to the company’s performance. For the smallest of companies, the rituals and formalities associated with comprehensive financial reporting requirements may be disproportionate when compared with other smaller companies.

The aim of the micro-entity regime is therefore to save the very smallest of businesses, time and effort and also at the same time be cost-effective, by offering an easily understandable, simplified form of statutory accounts and containing fewer elements even when compared to smaller companies.

There are some basic criteria set out as a pre-requisite that a company must meet in order to qualify as a micro-entity, including a requirement that it meets, at least two of the following three size thresholds:

Turnover : Not more than £632,000

Balance sheet total : Not more than £316,000

Average number of employees : 10 employees or less

Meanwhile, it is also pertinent to understand about Form CT600 here. A limited company pays tax on their profits, which is called Corporation Tax. The Company Tax return is a form CT600, but this is not usually submitted to HMRC on its own and has to submit all supporting documents, like company accounts etc.

A limited company pays tax on their profits, which is called Corporation Tax. The tax is also applicable to a number of other organisations like societies, associations, clubs and charities. Profits from trading and investment income are liable to Corporation Tax, although dividend income is taxed differently. Capital Gains are also liable to Corporation Tax, but are known as chargeable gains.

If the company is UK based, all profits will be taxed wherever they originated. If the company is based overseas but trades through a branch or office in the UK, only the taxable profits in the UK will be liable to UK tax.

There are three requirements for a limited company or another organisation to adhere to. These inform HM Revenue & Customs that the company is liable to Corporation Tax, paying the tax on time and filing the Company Tax Return and any other documents before the deadline. From 1st April 2011, it is compulsory to file your CT600 online, for accounting periods that end after 31st March 2010. The Corporation Tax payable must also be paid using electronic means. However, filing your CT600 online means the date your return is received is the date that HMRC’s computer system receives the return, without any delays.

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