Understanding Corporation Tax: A Guide For Business Owners

We know taxes can sound scary – especially when you’re just starting a business. It might feel like a lot of complicated numbers and jargon that doesn’t make much sense.

But don’t worry! We’re here to simplify things for you.

In this blog, we’ll break down what corporation tax is, how to calculate it, and what you need to do to stay on top of it. No fuss. No confusing words. Just clear, easy-to-follow advice for small business owners like you.

If you’d prefer an in-person or video consultation, click here.

What Is Corporation Tax?

Corporation tax is the tax your business pays on its profits. Profits are what’s left after you deduct expenses like salaries, rent, and other costs from your total income.

Here’s how corporation tax rates are calculated in the UK:

• Small Profits Rate (SPR):19% for profits up to £50,000.
• Main Rate:25% for profits over £250,000.
• Marginal Relief:For profits between £50,001 and £250,000, marginal relief applies, creating a gradual increase in the effective corporation tax rate to 26.5%.

Who Needs To Pay Corporation Tax?

If you run a limited company in the UK, you’ll need to pay corporation tax. Even if your business didn’t make much profit – or made a loss – you still need to let HMRC know.

Please note that sole traders don’t pay corporation tax. Instead, they pay income tax via self-assessment.

How To Calculate Your Corporation Tax – Step-By-Step Guide

1. Work Out Your Profits

Start by adding up all the income your business earned during the year. Then subtract all your allowable expenses – things like salaries, rent, supplies, and equipment.

The amount left is your profit, and this is the figure you’ll use to calculate your corporation tax.

2. Check Allowable Deductions

Certain expenses can reduce your taxable profits. For example, costs for machinery, office equipment, or even research and development might qualify for tax relief.

These deductions lower the profit figure you pay tax on, so make sure you check which expenses are allowable under HMRC rules. Our experts are here to help – so no worries about this!

Also read – 8 ways to reduce corporation tax [a guide] – Bells Accountants 

3. Apply The Corporation Tax Rate

Once you have your final taxable profits, multiply this figure by the corporation tax rate, currently 19% for profits up to £50,000. For instance, if your profits are £40,000, 19% of this is £7,600. That’s how much you owe in corporation tax – simple as that!

4. Account For Losses Or Reliefs

If your business made a loss, you may be able to carry it forward to offset profits in future years or backwards for one year to reduce your previous profits. This can lower your tax bill. Tax reliefs for items like investments or donations can also reduce the total tax you owe.

5. File Your Corporation Tax Return

Complete and submit your corporation tax return (Form CT600) to HMRC. Make sure your figures are accurate and keep all supporting documents handy – good records save time and stress!

Remember, filing your corporation tax return isn’t optional. Missing deadlines can lead to penalties, and no one wants that. You must register for corporation tax within 3 months of starting your business. You have 12 months to file your corporation tax return, but you must pay any corporation tax within 9 months and one day of your year end.

Top Tips To Stay On Top Of Corporation Tax

1. Keep Good Records

Maintain organised records of all income, invoices, expenses, and receipts throughout the year. Good bookkeeping ensures you claim every allowable deduction, avoid errors, and file your tax return easily.

Using accounting software or a professional bookkeeper can save time and make the process stress-free.

2. Set Money Aside for Tax

Don’t let your tax bill catch you by surprise. Regularly set aside a portion of your profits – around 25% (or at least 19%) – to cover corporation tax. Keeping this money in a separate account ensures you’re prepared to pay HMRC on time, avoiding penalties and financial strain when the bill arrives.

3. Understand Deadlines

Stay on top of your key tax deadlines to avoid fines. You must file your corporation tax return within 12 months of your financial year-end and pay the tax due within 9 months and 1 day.

Mark these dates in your calendar to avoid last-minute panic.

4. Claim All Allowable Expenses

Check that you’re claiming all eligible expenses, such as office rent, salaries, travel costs, and equipment. Don’t forget capital allowances on machinery and other business investments. Maximising these deductions reduces your taxable profits, which means you pay less corporation tax.

Every saving adds up!

5. Work With An Accountant Who Handles It For You!

Last but not least, work with a professional and friendly accountant team. They can save you time, stress, and money. They’ll ensure you comply with HMRC rules, file accurate returns, and identify opportunities to lower your tax bill.

Need Help? Reach Out To Us!

We know most people think accountants are all about grey suits and scary numbers. Not us! At Bells Accountants, we do things differently. We work with you like a partner, not just a service provider. Whether you want the full details of your accounts or just a simple overview, we’ll tailor our approach to you.

We’ll help you with:

• Filing your corporation tax return.
• Keeping your business records in order.
• Making your company more tax-efficient so you save money.

Our goal is simple: help you keep more of your hard-earned money in your pocket and less in the taxman’s hands.

If you’re feeling overwhelmed with corporation tax, let’s chat. Email us at , and let’s get started today.

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