How to Calculate Corporation Tax

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.

operating profit

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 Calculation

Corporation tax 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

When is Corporation Tax Due for a Limited Company?

New Here? Learn how to set up the financial side of your business with these easy to understand guides and resources:

  • Sole Trader or Limited Company? – Download my free calculator to check which business structure would help you to pay less tax;
  • Tax Records and Bookkeeping – Understand what tax records you’ll need to keep and how to set up your own bookkeeping system;
  • Self Employment Taxes Explained – Learn what taxes you’ll pay, how much and when;
  • VAT Guides – From registration to de-registration, VAT schemes and thresholds, these guides will take you through the basics every UK small business owner needs to know;
  • Invoice Template – Free template and step-by-step guide so you can get paid by your clients.
Anita Forrest
About Anita Forrest

Anita Forrest is a Chartered Accountant, spreadsheet geek, money nerd and creator of www.goselfemployed.co - the UK small business finance blog for the self-employed community. Here she shares simple, straight-forward guides to make self-employment topics like taxes, bookkeeping and banking easy to understand.