Calculating Corporation Tax in the UK

Corporation tax in the United Kingdom is levied on company profits. To calculate corporation tax, you need to follow several steps. Here are the key stages of calculation:

1. Determine Taxable Profit

Taxable profit is the company’s profit after deducting allowable expenses from total income. Allowable expenses may include:

  • Salaries and National Insurance Contributions (NICs)
  • Operating costs (e.g., rent, utilities)
  • Depreciation
  • Marketing and advertising expenses
  • Professional services (e.g., accounting and legal services)

2. Apply Tax Reliefs and Deductions

Before calculating corporation tax, check if you are eligible for any tax reliefs or deductions, such as:

  • Research and Development (R&D) Tax Relief
  • Capital allowances for investments in fixed assets (Annual Investment Allowance)

 

3. Calculate Corporation Tax

After determining taxable profit and applying all reliefs, you can calculate corporation tax. Corporation tax rates in the UK for 2024 are:

  • 19% for small companies: This rate applies to companies with taxable profits up to £50,000.
  • 25% for large companies: This rate applies to companies with taxable profits over £250,000.
  • Marginal rate: Companies with taxable profits between £50,001 and £250,000 are subject to a progressive marginal rate.

Formula for calculating tax for large companies:

Corporation tax = Taxable profit * 25%

Formula for calculating tax for small companies:

Corporation tax = Taxable profit * 19%

Example: If a company has a taxable profit of £100,000:

  • The first £50,000 is taxed at 19%: Tax = £50,000 * 19% = £9,500
  • The remaining £50,000 is taxed at the marginal rate: Tax = £50,000 * 25% = £12,500

The total corporation tax will be: Tax = £9,500 + £12,500 = £22,000

4. Submit the Corporation Tax Return

Once you have calculated the corporation tax, you need to submit the corporation tax return (CT600) to HMRC. The return must be filed within 12 months of the company’s accounting period end.

5. Pay the Tax

Corporation tax must be paid within 9 months and 1 day after the end of the company’s accounting period. Late payments may result in interest charges and penalties.

For more information and details on corporation tax in the UK, you can visit the official HMRC website.