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How is Corporate Tax Calculated and When are Corporate Taxes Due?

Updated: Dec 15, 2023

What is Corporate Taxes in the UK?

Corporate taxes in the UK are taxes paid by companies on their profits, also known as corporation tax. Companies are required to pay this tax on their profits, which is calculated by subtracting business expenses from revenue earned.


Corporate taxes play a crucial role in the UK's economy, as they generate revenue for the government, which is then used to fund public services and infrastructure. Companies are required to submit annual tax returns and pay their taxes on time to avoid penalties and legal action by the government.


The Corporate tax is one that all limited companies have to pay on their profits, which is the amount your business earns after overheads and other expenses are deducted. Knowing how to calculate corporate tax for small companies is crucial to ensure that you are in compliance with Corporation Tax requirements


How is Corporate Tax Calculated


Corporation Tax Rates for 2023/24

In the UK, the corporation tax rates for the financial year beginning 1 April 2023 have undergone significant changes compared to previous years. These changes introduce a more complex structure, particularly for companies with varying levels of profit. Here's an overview of the rates for 2023/24:

  1. Small Profits Rate:

  • For companies with profits not exceeding £50,000, the corporation tax rate is set at 19%. This is referred to as the small profits rate. It's designed to benefit smaller companies by keeping their tax rate lower.

  1. Main Rate:

  • Companies with profits of £250,000 or more are subject to the main rate of corporation tax, which is 25%. This is a significant increase from the previous flat rate of 19% that was applicable across all profit levels.

  1. Marginal Relief and Tapering Rate:

  • The most complex aspect of the new tax structure is the introduction of a tapering rate for companies with profits between £50,000 and £250,000. In this range, the corporation tax rate gradually increases from 19% to 25%.

  • Marginal Relief is available for companies within this profit range. It provides a gradual increase in the tax rate rather than an abrupt jump from 19% to 25%. This relief is calculated based on a specific formula that considers the amount of profit and the difference between the upper and lower limits of the relevant profit bands.

  1. Applicability:

  • These rates apply to all companies liable to pay corporation tax in the UK.

  • The exact tax rate applicable to a particular company depends on its level of taxable profit.

It's important to note that these rates represent a departure from the previous flat-rate system. The introduction of the small profits rate and the main rate, along with the Marginal Relief for mid-range profits, aims to create a more progressive tax system that varies according to the profitability of companies.



What Is a Quick Formula for Calculating Corporate Tax in the UK?


The formula for calculating corporate tax in the UK is as follows:


  1. A quick formula for calculating corporate tax in the UK for the tax year 2023/24 can be summarized as follows:

  2. Start with the company's pre-tax profits: This is the profit figure before any tax is applied, typically found in your financial statements.

  3. Deduct any allowable expenses: These include costs directly related to running your business, such as employee wages, office expenses, and costs of goods sold.

  4. Make any necessary tax adjustments: This includes adding back any disallowed expenses (like entertainment costs), and subtracting any allowable deductions like capital allowances or losses carried forward from previous years.

  5. Apply the relevant corporation tax rate:

  • If your profits are £50,000 or less, use the small profits rate of 19%.

  • If your profits are more than £250,000, use the main rate of 25%.

  • For profits between £50,000 and £250,000, the rate increases progressively from 19% to 25%. You'll need to calculate this using the Marginal Relief formula.

  1. The resulting figure is your corporation tax liability.

  2. This formula provides a basic framework. The exact tax calculation might be more complex, especially when Marginal Relief is involved for profits between £50,000 and £250,000. For precise calculations, especially when dealing with complex tax scenarios, consulting a tax professional is advisable.


Step by Step Guide for Calculating Corporation Tax for 2023/24 in the UK


Navigating the UK's corporation tax system can be a daunting task, especially with the recent changes implemented for the 2023/24 tax year. This comprehensive guide aims to simplify the process, providing a step-by-step approach to calculating your corporation tax liability, whether you’re a small start-up or a large corporation.


Step 1: Determine Your Company's Taxable Profits

The first step in calculating corporation tax is to ascertain your company's taxable profits. Taxable profit is not just the net profit shown in your financial statements but also includes certain adjustments for tax purposes.

  • Calculate your company’s gross profit by subtracting the cost of goods sold from your total revenue.

  • Deduct business expenses that are allowable for tax purposes. These include staff salaries, office costs, travel expenses, legal and financial costs, among others.

  • Add any other taxable income, such as investment profits or property income.


Step 2: Adjust for Tax Purposes

Some expenses and incomes require adjustments according to tax laws:

  • Add back any disallowed expenses like client entertainment or non-business related expenses.

  • Deduct capital allowances on assets like machinery or business vehicles.

  • If you have any carried forward losses from previous years, you can offset them against this year’s profits, reducing the taxable amount.


Step 3: Calculate Taxable Profits

Now, sum up the adjusted figures to arrive at your taxable profit. This is the figure on which corporation tax will be calculated.


Step 4: Understand the Tax Rates

For the 2023/24 tax year, there are different tax rates based on your company's profits:

  • For profits up to £50,000: The small profits rate of 19% applies.

  • For profits over £250,000: The main rate of 25% applies.

  • For profits between £50,000 and £250,000: Marginal Relief applies, and the tax rate gradually increases from 19% to 25%.


Step 5: Apply the Relevant Tax Rate

Based on your calculated taxable profit, apply the corresponding tax rate:

  • If your profits are £50,000 or below, apply a 19% tax rate.

  • If your profits exceed £250,000, apply a 25% tax rate.

  • For profits in between, calculate the effective tax rate using the Marginal Relief formula.


Step 6: Calculate Marginal Relief (If Applicable)

If your profits fall between £50,000 and £250,000, you need to calculate the Marginal Relief. The relief is calculated as follows:

  • Find the difference between your profits and the upper limit (£250,000).

  • Multiply this difference by the Marginal Relief fraction (3/200 for 2023/24).

  • Subtract the result from the standard tax at 25% to find your effective tax rate.


Step 7: Apply the Effective Tax Rate

Now apply the calculated effective tax rate to your taxable profits to determine your corporation tax liability.


Step 8: Consider Any Tax Reliefs and Deductions

You might be eligible for certain reliefs that can reduce your tax bill:

  • Research and Development (R&D) relief for companies developing new products or services.

  • Creative Industries Tax Reliefs for qualifying companies in the creative sector.

  • Patent Box regime if your company earns income from patented inventions.


Step 9: Compute Your Final Corporation Tax Liability

After considering all reliefs and deductions, compute your final tax liability. This is the amount you will owe to HM Revenue and Customs (HMRC).


Step 10: Filing and Payment

You must file a Corporation Tax Return (CT600) and pay any due tax within nine months and one day after the end of your accounting period. Ensure accurate and timely filing to avoid penalties and interest.


Calculating corporation tax can be complex, especially with the new rates and rules for 2023/24. Understanding your company’s financials and applying the correct rates and reliefs is crucial in accurately determining your tax liability. When in doubt, consulting a tax professional is advisable to ensure compliance and optimize your tax position. Remember, staying informed and proactive in your tax affairs is key to successful financial management in the business world.




Hypothetical Real-Life Example of Calculating Corporation Tax for 2023/24 in the UK


Understanding how to calculate corporation tax can be a complex process. To illustrate how it works in the UK for the 2023/24 tax year, let’s consider a hypothetical example. We'll follow the journey of 'Tech Innovations Ltd', a medium-sized tech company, as it navigates through the new tax rates and rules.


Background of Tech Innovations Ltd

Tech Innovations Ltd, based in London, specializes in developing innovative software solutions. For the financial year ending 31st March 2024, the company reported a gross revenue of £1.2 million.


Step 1: Calculating Gross Profit

  • Gross Revenue: £1.2 million.

  • Cost of Goods Sold (COGS), including software development costs and salaries of developers: £450,000.

  • Gross Profit: £1.2 million - £450,000 = £750,000.


Step 2: Deducting Allowable Business Expenses

  • Operating Expenses, including office rent, utilities, and marketing: £150,000.

  • Staff Salaries (excluding development team included in COGS): £200,000.

  • Travel and Entertainment Expenses: £30,000.

  • Total Allowable Expenses: £380,000.


Step 3: Adjustments for Tax Purposes

  • Client entertainment expenses (non-deductible): £5,000 (to be added back).

  • Capital allowances on new computers: £20,000 (to be deducted).

  • Carried forward losses from previous year: £10,000 (to be deducted).


Step 4: Calculating Taxable Profits

  • Adjusted Profit Before Tax: £750,000 - £380,000 = £370,000.

  • Add Back Non-Deductible Expenses: £370,000 + £5,000 = £375,000.

  • Deduct Capital Allowances and Losses: £375,000 - £30,000 = £345,000 (Taxable Profit).


Step 5: Applying the Tax Rates

  • Since Tech Innovations Ltd has profits of £345,000, it falls into the bracket where Marginal Relief is applicable. The profits are above £50,000 but below £250,000.


Step 6: Calculating Marginal Relief

  • Difference between profits and upper limit: £250,000 - £345,000 = -£95,000 (negative value implies full 25% rate applies).

  • The company’s profits exceed the upper limit, so the full main rate of 25% is applicable without Marginal Relief.


Step 7: Corporation Tax Calculation

  • Corporation Tax at 25%: 25% of £345,000 = £86,250.


Step 8: Considering Tax Reliefs and Deductions

  • Tech Innovations Ltd invested heavily in R&D. They are eligible for R&D tax relief, which reduces their taxable profits.

  • R&D relief claim: £50,000.

  • Adjusted Taxable Profit: £345,000 - £50,000 = £295,000.


Step 9: Final Corporation Tax Liability

  • Final Corporation Tax at 25%: 25% of £295,000 = £73,750.


Step 10: Filing and Payment

  • Tech Innovations Ltd must file its Corporation Tax Return and pay the tax due (£73,750) by 1 January 2025 (nine months and one day after the end of its financial year).


In this hypothetical scenario, Tech Innovations Ltd successfully navigated the new corporation tax rules for the 2023/24 tax year. The company initially faced a higher tax liability due to its profit bracket, but through eligible R&D tax relief, it managed to significantly reduce its final tax bill. This example underscores the importance of understanding the various tax rates, reliefs, and deductions available to businesses in the UK. Accurate calculation and strategic planning can lead to substantial tax savings, crucial for the financial health and growth of any company.


This example also highlights the complexity of the UK's corporation tax system and the need for companies to stay informed about the latest tax laws and regulations. Engaging with tax professionals or accountants can be invaluable in ensuring compliance and optimizing tax efficiency. As tax laws and rates can change, it’s important for businesses to keep abreast of these developments and adjust their tax strategies accordingly.


When are Corporate Taxes Due


When are Corporate Taxes Due?

As a limited company in the UK, you'll need to file your corporation tax return and pay any corporation tax that's due within 9 months and 1 day of the end of your company's accounting period.


Your company's accounting period is usually the same as the financial year (1 April to 31 March), but it could be different if your company started trading part-way through a financial year or if you've changed your accounting period. If you're not sure when your company's accounting period ends, you can check this on your corporation tax return.


The deadline for filing your return and paying corporation tax can be extended in certain circumstances, for example, if your company is in administration or liquidation. If you don't file your return or pay any corporation tax that's due on time, you'll be charged interest and may also be fined. If you're not sure how much corporation tax your company needs to pay, you can use HMRC's corporation tax calculator.


Here are the key milestones:

● Accounts to Companies House, nine months after the end of the accounting period

● Corporation tax payment due, nine months + one day after end of the accounting period

● Corporation tax return due, 12 months after a company’s accounting period



Steps to Ensure that You are on Top of Deadlines


● Make sure your bookkeeping is up to date each month or every week to avoid a last-minute rush

● Select a simple bookkeeping program to organize everything in one spot.

● If you employ accountants to assist you with tax returns. They will be able to meet earlier deadlines which will allow them to finish the tasks on time.

● Keep your contact information up to date and in contact with HMRC so that you get timely reminders

● Install the Government Gateway to access your tax account. If you have a limited company.


How to File Corporation Tax Returns in the UK?

Filing corporation tax returns is a legal requirement for all UK-based companies. A corporation tax is a tax on the profits made by companies and other organizations, including clubs, societies, and associations. Filing corporation tax returns can be complex, and it is essential to ensure that the returns are filed accurately and on time. This guide will provide an overview of the steps involved in filing corporation tax returns in the UK.


Determine the Company's Tax Year-End

The first step in filing corporation tax returns is to determine the company's tax year-end. The tax year-end is the date on which the company's accounting period ends. For most companies, the accounting period is 12 months long and ends on the same date each year. The company's tax year-end will determine the deadline for filing the corporation tax return.


Register for Corporation Tax

All UK-based companies must register for corporation tax with HM Revenue & Customs (HMRC) within three months of starting their business. This can be done online through the HMRC website, or by calling the HMRC helpline. During the registration process, the company will need to provide basic information about its business, including its name, address, and the date it started trading.


Keep Accurate Records

It is essential to keep accurate records of all business income and expenses throughout the year. This will make it easier to calculate the company's profits and losses at the end of the accounting period. The records should include details of all sales, purchases, and expenses, as well as bank statements, invoices, and receipts. It is also important to keep track of any capital assets, such as buildings, vehicles, and equipment, and to record any depreciation or capital allowances claimed.


Prepare the Corporation Tax Return

Once the accounting period has ended, the company will need to prepare its corporation tax return. The corporation tax return is a form that provides details of the company's profits, losses, and tax liability for the accounting period. The form can be completed online through the HMRC website, or on paper.


The corporation tax return will require the following information:


  1. The company's registered name and number

  2. The company's accounting period

  3. The company's profits and losses for the accounting period

  4. Details of any capital allowances or depreciation claimed

  5. Details of any other income, such as interest or dividends

  6. Any adjustments to profits, such as losses brought forward from previous years

  7. The company's tax liability, based on the profits and losses declared


Calculate the Company's Tax Liability

Once the corporation tax return has been completed, the next step is to calculate the company's tax liability. The tax liability is the amount of corporation tax that the company owes for the accounting period. The tax liability is calculated based on the company's profits and losses for the year, and the current corporation tax rate.

For example, if the company made a profit of £100,000 for the accounting period, and the current corporation tax rate is 19%, the tax liability would be £19,000 (i.e., 19% of £100,000). However, there may be other factors to consider when calculating the tax liability, such as capital allowances, losses brought forward from previous years, and the availability of tax reliefs.


Pay the Corporation Tax

Once the company's tax liability has been calculated, the final step is to pay the corporation tax. The deadline for paying corporation tax is nine months and one day after the end of the accounting period. Payment can be made online through the HMRC website, or by bank transfer, cheque, or direct debit.


Which HMRC Forms are Used to File Corporation Tax Returns in the UK?

In the UK, companies are required to file their corporation tax returns using specific forms provided by HM Revenue & Customs (HMRC). The following are the main HMRC forms used to file corporation tax returns in the UK:


The CT600 form is the main form used to file corporation tax returns in the UK. This form provides details of the company's profits, losses, and tax liability for the accounting period. The CT600 can be completed online through the HMRC website or on paper.


The CT600A form is used to provide additional information to support the information provided in the CT600 form. This form is used when the CT600 form does not provide enough space to include all the required information, such as details of any capital allowances or depreciation claimed.


The CT600B form is used when a company wants to claim group relief or consortium relief. Group relief allows a group of companies to offset losses and profits between each other, while consortium relief allows companies in a consortium to offset losses and profits between each other.


The CT600C form is used by charities and community amateur sports clubs (CASCs) to file their corporation tax returns. This form provides additional information required by charities and CASCs, such as details of any donations and Gift Aid claimed.


The CT600D form is used by non-resident companies that have a UK branch or agency. This form provides details of the company's UK income and expenses and is used to calculate the company's UK tax liability.


The SA700 form is used by partnerships to file their tax returns. Partnerships are not taxed as separate entities, so the partnership tax return is used to provide details of the partnership's income and expenses, which are then allocated to each partner.


It is important to note that the forms required may vary depending on the specific circumstances of the company. It is recommended to consult with a qualified accountant or tax advisor for guidance on which forms to use when filing corporation tax returns in the UK.


How is Corporate Tax Calculated


What Expenses You Can Claim Against Corporation Tax?

If you're a limited company owner in the UK, you'll be pleased to know that there are a number of expenses you can claim against corporation tax. Here's a rundown of some of the main ones:


1. Salaries, wages, and other forms of remuneration - You can deduct salaries, wages, bonuses, commissions, and other forms of remuneration paid to employees from your corporation tax bill.


2. Rent - If you rent premises for your business, you can deduct the rent from your corporation tax bill.

3. Rates - You can also deduct business rates from your corporation tax bill.

4. Insurance - If you insure your business premises, stock or equipment, you can deduct the premiums from your corporation tax bill.

5. Interest - If you pay interest on a business loan, you can deduct the interest from your corporation tax bill.

6. Depreciation - You can claim depreciation on certain business assets, such as machinery and equipment. This is a tax-deductible expense.

7. Advertising and promotion - You can deduct the cost of advertising and promotion from your corporation tax bill.

8. Legal and professional fees - You can deduct the cost of legal and professional fees from your corporation tax bill.

9. Travel and entertaining - You can deduct the cost of business travel and entertainment from your corporation tax bill.

10. Bad debts - You can deduct bad debts from your corporation tax bill.


By claiming all of the eligible expenses against corporation tax, you can reduce your tax bill significantly. Therefore, it's important to keep track of all business expenses so that you can claim them when the time comes.


What Happens If You Don't Pay Your Corporation Tax?

If you don't pay your corporation tax, your company will be subject to late payment penalties. The amount of the penalty will depend on how much tax is owed and how late the payment is. The penalty is also tiered, so if you have a history of late payments, the penalties will be even higher. In addition to late payment penalties, your company may also be subject to interest charges on unpaid tax. If the tax debt is not paid, your company may eventually be subject to insolvency proceedings.


How to Appeal a Corporation Tax Decision?

If you're a limited company in the UK, you'll be liable for corporation tax on your profits. The current corporation tax rate is 19%, which means that you'll need to pay £19 in tax for every £100 of profit.

However, sometimes the taxman gets it wrong and you might find yourself with a bill that you think is unfair. If this happens, you have the right to appeal the decision.


Here's A Step-By-Step Guide to Appealing a Corporation Tax Decision:

1. Check the corporation tax notice that you received to see if you have the right to appeal. You should have received a notice from HMRC within 30 days of the original decision.


2. If you have the right to appeal, you need to do so within 30 days of receiving the notice. You can appeal by writing to HMRC or by using their online appeal form.


3. When you write to HMRC or fill in the online form, you'll need to give your name, address, contact details, and corporation tax reference number. You'll also need to explain why you're appealing and what you think the correct decision should be.


4. Once HMRC receives your appeal, they'll look at the case again and make a new decision. If they agree with you, they'll change the amount of corporation tax you owe and send you a new bill.


5. If HMRC doesn't agree with you, they'll send you a letter explaining their decision. You can then choose to accept the decision or appeal to the First-tier Tribunal.

If you want to appeal to the First-tier Tribunal, you'll need to do so within 30 days of receiving HMRC's letter. The Tribunal is an independent body that will look at your case and make a decision.


If you're still not happy with the decision, you can appeal to the Upper Tribunal, but you'll need to get permission from the First-tier Tribunal first.


Appealing a corporation tax decision can be a complex process, so it's a good idea to get professional help if you can.


Is It a Good Idea to Hire a Professional Tax Accountant to File Corporation Tax Returns in The UK?

Filing corporation tax returns in the UK can be a complex and time-consuming process, and it is essential to ensure that the returns are filed accurately and on time to avoid penalties and interest charges. Hiring a professional tax accountant can provide many benefits and can make the process of filing corporation tax returns much smoother. Here are some of the reasons why it is a good idea to hire a professional tax accountant to file corporation tax returns in the UK:


Expertise and knowledge

Professional tax accountants have extensive knowledge and expertise in UK tax laws and regulations. They are up to date with the latest changes in tax legislation and can provide guidance and advice on complex tax issues. They can help ensure that the company is complying with all relevant tax laws and regulations, and can help to minimize tax liability.


Time-saving

Filing corporation tax returns can be time-consuming, and it can take a lot of time and effort to ensure that the returns are filed accurately and on time. By hiring a professional tax accountant, the company can save time and focus on other core business activities. The tax accountant will take care of all the tax-related work, including preparing and filing tax returns, calculating the tax liability, and ensuring that all deadlines are met.


Accuracy

Filing corporation tax returns requires a high level of accuracy, and even small errors can lead to penalties and interest charges. Professional tax accountants are trained to be accurate and thorough when preparing and filing tax returns. They can ensure that all information provided is accurate and complete, and can help to minimize the risk of errors and mistakes.


Penalties and Interest Charges

Failing to file corporation tax returns accurately and on time can result in penalties and interest charges. These penalties can be significant and can have a negative impact on the company's finances. By hiring a professional tax accountant, the company can avoid penalties and interest charges, as the tax accountant will ensure that all tax returns are filed accurately and on time.


Tax Planning

Professional tax accountants can provide tax planning advice and guidance to help the company reduce its tax liability. They can identify tax planning opportunities and can help to implement tax-saving strategies. This can help the company to save money and can have a positive impact on its finances.


In conclusion, hiring a professional tax accountant to file corporation tax returns in the UK can provide many benefits. It can save time, ensure accuracy, and help to minimize tax liability. It can also help to avoid penalties and interest charges and provide tax planning advice and guidance. It is recommended to consult with a qualified accountant or tax advisor for guidance on filing corporation tax returns and to discuss the specific needs of the company.


How Can "Pro Tax Accountant" Help You to File Corporation Tax Returns?

Pro Tax Accountant can help you file corporation tax returns in the UK by providing a range of professional accounting services. Here are some of the ways they can assist you:


  • Preparation and filing of corporation tax returns: Pro Tax Accountant can prepare and file your corporation tax return with HM Revenue and Customs (HMRC) on your behalf, ensuring that all necessary information is included and that deadlines are met.

  • Tax planning and advice: They can provide tax planning and advice to help you optimize your corporation tax position and reduce your tax liability. This can include advice on allowable expenses and deductions, tax credits, and other tax-saving strategies.

  • Compliance checks: They can carry out compliance checks to ensure that all relevant regulations and requirements are met, and to identify any potential issues or areas of concern.

  • HMRC correspondence: They can act as a point of contact for HMRC correspondence, including responding to queries, appeals, and investigations.

  • Bookkeeping and accounting: They can provide bookkeeping and accounting services to help you maintain accurate financial records and ensure that your corporation tax return is based on reliable data.


Overall, by engaging Pro Tax Accountant, you can benefit from their expertise and experience in handling UK corporation tax matters, ensuring that your tax affairs are in good order and that you are fully compliant with all relevant regulations and requirements.



The preparation of documents for corporation tax is a difficult and time-consuming procedure. Additionally, you must be certain of what details regarding the company's finances, assets, and accounts are required and what information should not be included.


Pro Tax Accountant employs an experienced team of accountants who have been trained to handle the company's taxes. They are aware of how to organize everything in order and protect your company's interests.


We make sure that each client gets the maximum benefit from the law and that their returns are submitted within the specified timeframe. Fill in our online form and we'll return with a plan of action, specifically tailored to your needs.










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