How much Corporation Tax will I pay?

Corporation Tax is a tax on the profits of limited companies. The company (not HM Revenue and Customs) will work out how much Corporation Tax is payable on the profits.

What is the rate of Corporation Tax?

In the latest government budget announcement, the main corporation tax rate (for all profits except ring fence profits) for all companies is 19% for the year starting 1 April 2021 and 2022.

How do I work out my profits?

The profit calculated in the accounts is not necessarily the same as the profit on which Corporation Tax is calculated.

There may be some items which are not allowed for corporation tax purposes (your accountant will be able to help you with this).

In order to work out the profits on which corporation tax is payable, we will consider two steps:

Step 1: Adjust the profits from the accounts

	£	Explanation
Net Profit per Accounts	117,143	The profit before tax taken from the profit and loss account (income statement).
Add: Non-trading expenses	38,345	We add expenses which are not allowable as trading (business) expenses and have been included in the accounts. (See Which business expenses aren’t allowable? below for more information).
Less: Non-trading income	6,286	We deduct income which is not trading (business) income and has been included in the accounts. For example, income from property, interest received and profits from the sale of assets.
Less: Capital Allowances	62,413	We may be able to deduct capital allowances (see What are capital allowances? below for more information).
Adjusted profit	86,789	Then you have your adjusted profit.

Step 2: Calculate the total amount on which Corporation Tax will be paid

	£	Explanation
Adjusted profit	86,789	The adjusted profit is the figure we have calculated previously.
Less: Trading losses brought forward	6,000	Deduct any trading losses (unused) brought forward from a previous accounting period.
	80,789
Add: Income from property	0	Add any income from property.
Add: Income after non-trading loan relationships	6,286	Add income from non-trading loan relationships, for most companies this will usually consist of bank and/or loan interest received.
Add: Chargeable Gains	0	Add chargeable gains. The most common examples are profits on the sale of shares, land and buildings and business assets.
	87,075
Less: Charges on Incom	0	Companies can claim tax relief from qualifying charitable donations, by deducting the amount from its taxable profits, up to the extent that the taxable profits are reduced to £nil.
Profits chargeable to Corporation Tax	87,075	And finally, we have the profits chargeable to Corporation Tax. Note that any dividends received are NOT included.

When can I claim a capital allowance?

You can claim capital allowances on items that you keep to use in your business – these are known as ‘plant and machinery’.

Buildings

Unfortunately, buildings and alterations to buildings are deemed to be changes to the setting in which your business trades from and therefore capital allowances are not allowed. In order to claim capital allowances, the item being purchased has to be performing a function. Some items within modern buildings, such as air conditioning units, are deemed to be integral features and do qualify for allowances. It’s worth speaking to a professional to discuss the allowances available.
Computer equipment

Computer equipment qualifies for capital allowances as these are deemed to be ‘plant and machinery’ and perform a function within the business. Where computer equipment has a particular short life you can elect to make a short life asset which effectively allows you to accelerate the allowances.
Cars and other commercial vehicles

Cars do qualify for capital allowances, where they are used in the business. Where there is private use then the allowance will be restricted each year, but only for unincorporated businesses as private use in a company is treated differently (under the benefit in kind rules). The rate of allowance on cars depends on the carbon dioxide emissions of the vehicle. Commercial vehicles such as vans qualify for capital allowances.
Machinery, equipment, fixtures and fittings etc

All of these qualify for capital allowances as all are deemed to perform a function within the business. The following counts as plant and machinery: Items that you keep to use in your business, including cars; costs of demolishing plant and machinery; Parts of a building considered integral, known as ‘integral features’ e.g lifts, escalators, water heating systems, air conditioning units, electrical systems; Some fixtures, e.g fitted kitchens or bathroom suites, fire alarms and CCTV systems; Alterations to a building to install other plant and machinery – this doesn’t include repairs.

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Which business expenses aren’t allowable?

Expenditure must be “wholly and exclusively” incurred for trading (business) purposes.

Expenditure is deducted from income in the profit and loss account; therefore if it is not allowable it must be added back.

Below are some common examples of expenditure which is disallowable for corporation tax purposes and must be added back:

Expenditure	Explanation
Capital expenditure and depreciation	Capital expenditure is the purpose or improvement of fixed assets. Fixed assets are large items which are not bought to resell. For example, motor vehicles, buildings, office and computer equipment.
Entertaining	Client entertaining is not allowable. Staff entertaining is allowable of incurred wholly and exclusively for business purposes, for example team building.
Donations	Political donations and charitable donations to national charities are not allowable. Always keep a note of charitable donations as they may be allowable as a charge on income (see How do I work out my profits above).
Penalties and fines	These are not allowable as they relate to breaking the law.
Legal fees	Legal fees relating to capital items or breaking the law are not allowable.

When do I pay Corporation Tax?

Any Corporation Tax due must be paid electronically by nine months and a day after the accounting period end.

For example – a company with a year-end 31 December 2018 must pay any Corporation Tax due by 1 October 2019.

To find out when your due date, use our interactive Corporation Tax date calculator.

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