What is Corporation Tax?
Corporation Tax is the tax payable by a company on its taxable profit in the company’s accounting year. Currently the corporation tax rate is 20%. The calculation of the amount of corporation tax due is quite complex. You first need to work out the ‘taxable profit’. In basic terms – this is how it works. You start with your company’s pre-tax profit figure (sometimes known as ‘profit before tax’) in your company’s financial accounts for a financial year.
Sales – Expenses = Pre-tax Profit.
add back any depreciation charges you’ve included in your accounts
deduct your capital allowances
add any other relevant income or chargeable gains
deduct any other relevant deductions, reliefs, allowances or losses
apply the relevant tax rate(s) to calculate your gross Corporation Tax payable
deduct any relevant tax credits and any Income Tax already deducted from interest income your company received (for example the tax deducted by your bank before it paid you interest)
The above can get quite complex – the good thing is that it’s your accountant’s job to calculate this for you.
To arrive at the amount of Corporation tax due you apply the corporation tax rate (20% for small companies from 1 April 2011) to the Taxable Profit.
Taxable Profit x 20% = Corporation Tax charge.
In theory then – the higher your expense figure, the lower the taxable profit, therefore, the lower your corporation tax.
When is Corporation Tax due?
The deadline to pay your Corporation Tax is 9 months and 1 day after your company’s Year-end.
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