The basics of corporation tax explained

When businesses trade as limited companies, they are liable to pay corporation tax in respect of each accounting period, which is based on the amount of taxable profit generated. The computation of corporation tax has become increasingly more complex with numerous exemptions and allowances that may be claimed to reduce the amount of corporation tax due, thereby maximising the business’s profits.

In this short guide, we will explain the basics of corporation tax and the benefits of working with an experienced chartered tax advisors and chartered accountants who can calculate your corporation tax liability on your behalf as well as taking advantage of the allowances to keep the tax bill as low as possible.

How is corporation tax calculated?

‘How much corporation tax will be paid?’ is clearly an important question that the management of any company is keen to know the answer to! Unfortunately, corporation tax is often complex to calculate, particularly where multinational entities are concerned.

Currently, the UK corporation tax rate is 19 percent. Therefore, if a company’s taxable profit was £50,000, the amount of corporation tax due would be £9,500; a £1m profit would result in a £190,000 corporation tax liability. As from 1 April 2023, the mainstream corporation tax rate will increase to 25% although the 19% tax rate will remain for companies generating under £50,000 of taxable profits with marginal relief applying of 26.5% applying between £50,000 and £250,000.

Corporation tax applies to all of the following:

  • Trading profits
  • Profits from investments
  • The sale of assets, including land, equipment, and shares.

Where a taxable loss is recorded, but a taxable profit was earned in the previous tax year, the loss may be carried back in order to obtain a tax refund on corporation tax already paid. The carry back of losses is complex and detailed assistance is required.

What are my responsibilities under corporation tax law?

It is critical that every limited company who is liable to pay corporation tax discharges its duties in an accurate and timely manner, to avoid any unwanted scrutiny or investigations from HMRC.

Typically, each company will need to:

  • File a corporation tax return with HMRC annually, based on (and supported by) a set of detailed company accounts.
  • Use their Unique Tax Reference (UTR) number when paying corporation tax to ensure that the correct account is credited.
  • Settle corporation tax due within 9 months and one day of the year-end, or for larger companies by quarterly instalments.

 How can my corporation tax bill be reduced?

By working with experienced corporation tax advisers, your company may be able to take advantage of tax reliefs to reduce your liability, such as:

  • Allowable expenses (for business travel or stationery, for example).
  • Capital allowances for essential business assets, such as computer equipment.
  • Research and Development (R&D) Relief.
  • Annual investment allowances.
  • Marginal Relief.
  • Trading losses.

Because rules change regularly, failing to stay abreast of regulations could mean your company misses crucial opportunities to reduce its corporation tax bill, leading to higher taxes and reduced profits. For this reason, entrusting your corporation tax affairs to an expert accountant makes sense.

Arnold Hill & Co: expert corporation tax advice for businesses like yours

At Arnold Hill & Co, our experienced corporation tax advisors can calculate your corporation tax liabilities on your behalf, including completing and submitting self-assessment returns for each accounting period. With extensive knowledge of supporting businesses, we can help you to minimise your tax liabilities and protect your organisation’s profits. To find out more, please get in touch today.


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