How Is Corporation Tax Calculated in the UK?

Corporation tax is a key obligation for limited companies operating in the UK. Whether you’re just starting your business or reviewing your finances, understanding how corporation tax is calculated helps you stay compliant and plan effectively.

At Front Edge Accountants, we help businesses with corporation tax calculation and compliance, making sure your company pays the correct amount—and nothing more.

What Is Corporation Tax?

Corporation tax is a tax on the profits made by UK limited companies. It is currently charged at a main rate of 25% (as of the 2024/25 tax year), though some companies with lower profits may benefit from a small profits rate of 19%.

How to Calculate Corporation Tax: Step-by-Step

If you’re wondering how to calculate corporation tax, here’s a simple breakdown:

1. Calculate Your Total Income

Include all sources of income from trading, investments, and other profits.

2. Deduct Allowable Business Expenses

These include employee wages, office costs, marketing, software, travel expenses, and more.

3. Subtract Capital Allowances

If you’ve bought equipment, vehicles, or assets for your business, you can deduct part of the cost using capital allowances.

4. Determine Your Taxable Profits

Your taxable profit is your total income minus allowable expenses and capital allowances.

5. Apply the Relevant Tax Rate

Use the main rate (25%) or the small profits rate (19%) depending on your profit level.

6. Consider Reliefs and Adjustments

Check if you’re eligible for reliefs such as R&D tax credits, marginal relief (for profits between £50,000–£250,000), or losses from previous years.

Example of Corporation Tax Calculation

Let’s say your company earned £120,000 in profit before tax.

  • After deducting £10,000 in allowable expenses and £5,000 in capital allowances, your taxable profit is £105,000.

  • Corporation tax at 25% = £26,250.

When and How to Pay Corporation Tax

  • You must pay your tax 9 months and 1 day after the end of your accounting period.

  • Payment is made directly to HMRC, often via online banking.

Why Work with Front Edge Accountants?

We help clients with:

  • Accurate corporation tax calculations
  • Timely submissions and payments
  • Claiming tax reliefs and optimising deductions
  • Digital recordkeeping and year-end accounts

Need Help Calculating Corporation Tax?

Let us take the stress out of year-end. Our experienced team at Front Edge Accountants ensures your corporation tax is correctly calculated and submitted on time.

Contact us today for a free consultation.