A Limited Company will pay corporation tax according to how much profit is made during one accounting period.
In this guide, I’ll show you how to calculate corporation tax using an easy-to-follow example, along with where you can find more resources on how to reduce your corporation tax bill using allowances, reliefs and other adjustments.
This guide is for Limited Company owners. If you are registered as self-employed you’ll pay income tax and national insurance instead.
What is Corporation Tax?
Corporation tax is a UK tax paid by Limited Companies on their taxable profits. The current UK corporation tax rate is 19%.
What are Taxable Profits?
When you calculate corporation tax you need to use a figure known as taxable profit.
Normally on the profit and loss account, there is a line for profit before tax. In the example below profit before tax is £130,750.
When it comes to working out corporation tax, adjustments are made to the profit before tax number for things like:
- Capital allowances;
- Previous years trading losses;
- Associated companies (until 31 March 2015);
- Depreciation;
- Disallowable expenses like entertainment.
Corporation tax is based on the figure after all these adjustments are made.
How to Calculate Corporation Tax
Using our example above, let’s suppose the business had the following tax adjustments to make:
- Entertainment £5,000
- VAT penalties £1,200
- Capital allowances for a new laptop £1,400
- Depreciation £2,500
Taxable Profits would be:
| Profit before tax | £130,750 |
| Add back: | |
| Entertainment (disallowable business expense) | £5,000 |
| Depreciation (disallowable business expense) | £2,500 |
| VAT penalties (disallowable business expense) | £1,200 |
| Subtract: | |
| Capital allowances | £1,400 |
| Taxable profit | £138,050 |
| Corporation tax payable (19%) | £26,229.50 |
Corporation tax for an Ltd is generally due for payment 9 months and 1 day after the end of an accounting period, with the tax return needing to be filed with HMRC 12 months after the end of the accounting period
