Corporation Tax Calculator

Corporation tax rates and marginal relief explained

Companies with taxable profits of £50,000 or less pay the small profits rate of 19%. Profits of £250,000 or more pay the main rate of 25% on everything. In between, the company is charged at 25% and then deducts marginal relief.

For a 12-month period with no associated companies and no dividend income from other companies, marginal relief = (£250,000 − profit) × 3/200. On £100,000 that is £2,250, so the bill is £25,000 − £2,250 = £22,750.

The effective rate rises smoothly from 19% to 25%, but the marginal rate on each extra pound of profit between the limits is 26.5%. That is worth knowing when deciding whether to pay a bonus or pension contribution before the year end.

Associated companies and short accounting periods

The £50,000 and £250,000 limits are divided by the number of associated companies plus one. With 2 associated companies, each company’s limits fall to £16,667 and £83,333, so a group cannot multiply the small profits rate by splitting activity across companies.

Limits are also reduced proportionately for an accounting period shorter than 12 months, which commonly affects a company’s first period or a change of year end. Dividends received from unrelated companies count towards the profit thresholds even though they are not themselves taxed.

What counts as taxable profit

Corporation tax is charged on trading profits, investment income and chargeable gains on selling assets. Taxable profit is not the same as accounting profit: depreciation is added back and replaced with capital allowances, and entertainment and fines are not deductible.

Salaries, employer NI, employer pension contributions and director’s salary are all deductible, which is why the order of extraction matters in a small company. Dividends are paid out of profit after tax and do not reduce the corporation tax bill.

Filing and payment deadlines

Late filing penalties are £200 one day late and a further £200 at three months. At six months HMRC estimates the bill and adds 10% of the unpaid tax, with another 10% at 12 months. If a return is late three times in a row, the £200 penalties rise to £1,000 each. Interest is charged on late payments and paid on early ones.

• Pay corporation tax 9 months and 1 day after the end of the accounting period if taxable profits are up to £1.5 million.
• Profits over £1.5 million: quarterly instalment payments, with stricter rules over £20 million.
• File the Company Tax Return (CT600) within 12 months of the end of the accounting period, even if there is no tax to pay.

Legitimate ways to reduce a corporation tax bill

Employer pension contributions are deductible if they are paid wholly and exclusively for the business. A company with £120,000 of profit pays £28,050. Paying a £20,000 employer pension contribution for the director before the year end reduces profit to £100,000 and the bill to £22,750, a saving of £5,300 – 26.5% of the contribution, because the profit sits in the marginal relief band.

Capital spending on plant and machinery, such as equipment, tools and computers, usually qualifies for the Annual Investment Allowance. The AIA is £1 million a year, so most small companies can deduct the full cost in the year of purchase. Cars do not qualify for the AIA and get their own capital allowance rules.

• Time large purchases and bonuses so they fall in the accounting period where they save most.
• Claim research and development relief if the company tackles genuine scientific or technological uncertainty.
• Check whether trading losses from earlier periods can be carried forward against this year’s profit.

Accounting periods and the tax return

Corporation tax is charged by accounting period, which is normally the same as the company’s financial year but can never be longer than 12 months. A company’s first accounts often cover more than 12 months from incorporation, in which case there are two accounting periods and two tax returns, each with its own deadline.

The Company Tax Return shows the profit for corporation tax, which is different from the profit shown in the statutory accounts. Directors are responsible for filing it even when an accountant prepares it.