How taxable profit is worked out
- Start with accounting profit. Your income less your business costs.
- Add back disallowed items. Depreciation and client entertaining are not tax deductible, so they are added back.
- Deduct capital allowances. Relief for equipment, machinery and other qualifying assets.
- Apply the rate. 19% up to £50,000, 25% over £250,000, and 25% with marginal relief in between.
A worked example
A company with a taxable profit of £40,000 pays corporation tax at 19%, which is £7,600. A company on £300,000 pays the main 25% rate. A company in between, say £120,000, pays 25% reduced by marginal relief, giving an effective rate between the two.
The deadline that catches people out
The payment is due 9 months and 1 day after your accounting period ends, which is earlier than the CT600 return, due at 12 months. So the money is due before the paperwork. Setting aside tax as profit is earned keeps that payment painless.
Want your corporation tax handled correctly?
Between the rates, marginal relief, allowances and deadlines, corporation tax is easy to get wrong. TaxTune prepares your accounts and return, claims every allowance, and tells you the exact figure and date to pay.
Let us take care of the company's tax
We prepare your accounts and CT600, calculate the tax with every allowance claimed, and file with HMRC and Companies House on time. Fixed fee, no surprises.
Frequently asked questions
What is corporation tax?
It is the tax a limited company pays on its taxable profit, which is broadly income less allowable costs, adjusted for tax. It is paid by the company itself.
What is the corporation tax rate?
The main rate is 25% on profits over £250,000, a small profits rate of 19% applies up to £50,000, and profits in between are taxed at 25% with marginal relief.
When is corporation tax due?
The payment is due 9 months and 1 day after the end of your accounting period, which is earlier than the CT600 return, due 12 months after the period end.
What is marginal relief?
It smooths the jump between the 19% and 25% rates for profits between £50,000 and £250,000, giving an effective rate somewhere between the two.
How can I reduce my corporation tax?
By claiming every allowable expense and capital allowance, using reliefs your company qualifies for, and planning director pay. An accountant usually finds more than the fee costs.