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Specialist accountants for UK contractors and freelancers

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Corporation Tax

What is Corporation Tax?

Corporation Tax is the tax payable by limited companies to HMRC on its taxable profits. Corporation Tax is payable to HMRC on a yearly basis and is generally due 9 months and one day after the company's yearend depending on the size of the company. The company will also get 12 months from the company year-end to file the associated company tax return(s) with HMRC.

How is Corporation Tax calculated?

To work out how much Corporation Tax your company will need to pay, you firstly need to work out the profits you'll have to pay tax on. This figure is known as a company's 'taxable profits for Corporation Tax'.

 

To work out your taxable profits, you start with your company's pre-tax profit figure (sometimes known as 'profit before tax') in your company's financial accounts for a financial year.  You then....

 

Add back any depreciation charges you've included in your accounts

 

Deduct your capital allowances (they take the place of depreciation charges)

 

Add any other relevant income or chargeable gains

 

Deduct any other relevant deductions, reliefs, allowances or losses

 

Apply the relevant tax rate to calculate your gross Corporation Tax payable

 

Deduct any relevant tax credits and any Income Tax already deducted from interest income your company received (for example the tax deducted by your bank before it paid you interest)

It is however always advisable to get a professional accountant to conduct these calculations for you as there are many different rules to apply when completing the calculation.