{"id":36341,"date":"2023-05-18T08:49:18","date_gmt":"2023-05-18T08:49:18","guid":{"rendered":"https:\/\/swoopfunding.com\/na\/?post_type=blog&#038;p=36341"},"modified":"2024-05-29T19:16:40","modified_gmt":"2024-05-29T19:16:40","slug":"how-to-calculate-corporation-tax","status":"publish","type":"blog","link":"https:\/\/swoopfunding.com\/na\/blog\/how-to-calculate-corporation-tax\/","title":{"rendered":"How to calculate corporation tax"},"content":{"rendered":"<div class=\"aivoov-player-block\">\n\t<div class=\"read_this\">Read this article to me<\/div>\n\t\t\t<style>\n\t\t\t.plyr__controls .plyr__controls__item:first-child{\n\t\t\t\tbackground:#2e9c8e !important;\n\t\t\t}\n\t\t\t:root{\n\t\t\t--plyr-color-main:#2e9c8e;\n\t\t\t--plyr-audio-controls-background:#f0f2f4;\n\t\t\t--plyr-audio-control-color:#546a7b;\n\t\t\t}\n\t\t\t[data-plyr=\"mute\"]{color:#2e9c8e !important}\n\t\t\t.aivoov-text-color{color:#546a7b}\n\t\t<\/style> \n\t\t<div class=\"audio_player\">\n\t\t<audio class=\"js-player\" controls=\"\">\n\t\t\t<source src=\"https:\/\/monky-voice-over.s3.amazonaws.com\/aivoov\/781640cc-7bc1-4bbf-9492-22dedc19678b\/9edddef7-bf7a-432b-a5b1-14e6e6e8f5e0.mp3\" type=\"audio\/mp3\">\n\t\t\t<source src=\"https:\/\/monky-voice-over.s3.amazonaws.com\/aivoov\/781640cc-7bc1-4bbf-9492-22dedc19678b\/9edddef7-bf7a-432b-a5b1-14e6e6e8f5e0.mp3\" type=\"audio\/ogg\" \/>\n\t\t<\/audio> \n\t\t\t\t <div class=\"powerd_by aivoov-text-color\"><p><a rel=\"nofollow noopener\" target=\"_blank\" href=\"http:\/\/aivoov.com\/?um_source=plugin_powered_by\" style=\"color: inherit;\">Powered by AiVOOV<\/a><\/p><\/div>\n\t\t \n\t\t<\/div>\n\t\t<\/div>\n\n\n\n<p>Understanding your taxes is an important part of running a business. Taxable income has to be calculated and paid to enable your business to continue operating.<\/p>\n\n\n\n<p>The main tax that a limited company must pay is corporation tax. This is a tax on your business profits, so any money your business makes after overheads and expenses have been deducted.<\/p>\n\n\n\n<p>Here, we cover everything you need to know about calculating how much you owe.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\">What is small business corporation tax?<\/h2>\n\n\n\n<p>All limited companies registered in the UK must pay corporation tax, no matter their size. Companies must <a href=\"https:\/\/swoopfunding.com\/na\/?post_type=blog&amp;p=36666\">register for corporation tax<\/a> when they <a href=\"https:\/\/swoopfunding.com\/uk\/blog\/how-to-set-up-a-limited-company\/\">set up as a limited company<\/a>.&nbsp;<\/p>\n\n\n\n<p>Corporation tax is paid annually to <a href=\"https:\/\/www.gov.uk\/government\/organisations\/hm-revenue-customs\" target=\"_blank\" rel=\"noopener\">HMRC<\/a> and must be paid both on your company\u2019s <a href=\"https:\/\/swoopfunding.com\/uk\/business-glossary\/profit\/\">profits<\/a> and on any gains from selling assets such as land or shares that have increased in value. You must pay your tax within nine months of the end of your <a href=\"https:\/\/swoopfunding.com\/uk\/business-glossary\/financial-year\/\">financial year<\/a>.&nbsp;<\/p>\n\n\n\n<p>Crucially, it\u2019s your company\u2019s responsibility to calculate how much tax is owed and pay it to HMRC before filing your company tax return. Your tax return must be filed within 12 months of the end of your financial year, so you\u2019ll need to prepare it well ahead of the deadline to know how much tax you owe.&nbsp;<\/p>\n\n\n\n<p><a href=\"https:\/\/swoopfunding.com\/uk\/business-glossary\/sole-trader\/\">Sole traders<\/a> and partnerships don\u2019t need to pay corporation tax as they must pay income tax through self-assessment instead.&nbsp;<\/p>\n\n\n\n<h2 class=\"wp-block-heading\">How to calculate corporation tax for small businesses and startups<\/h2>\n\n\n\n<p>To work out your corporation tax bill you\u2019ll need a few accounting skills and understand what tax reliefs your business can take advantage of. It\u2019s generally best to speak to a business accountant and seek professional advice to help you complete your corporate tax return. You can also use our handy <a href=\"https:\/\/swoopfunding.com\/uk\/business-loan-calculator\/corporate-tax-calculator\/\">corporation tax calculator<\/a> to help you.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\">Calculate sales and income<\/h3>\n\n\n\n<p>First up, you need to create a profit and loss account to be able to work out how much you owe. You\u2019ll need to add up all sales income your business generates, along with any interest you\u2019ve earned, such as on a business savings account.&nbsp;<\/p>\n\n\n\n<h3 class=\"wp-block-heading\">Calculate overheads<\/h3>\n\n\n\n<p>Your next step is to calculate your overheads and other business expenses. These can be deducted from your trading income to work out the profit your business makes.&nbsp;<\/p>\n\n\n\n<p>It\u2019s important to claim all allowable deductions and expenses from the trading income to ensure you don\u2019t pay more tax than you should. Allowable expenses are those that have been incurred solely for the purposes of running the business and won\u2019t have a personal use. They could include:<\/p>\n\n\n\n<ul class=\"wp-block-list\">\n<li>Accounting fees<\/li>\n\n\n\n<li>Salaries of employees<\/li>\n\n\n\n<li>Training fees<\/li>\n\n\n\n<li>Office supplies<\/li>\n\n\n\n<li>Software costs<\/li>\n\n\n\n<li>Business insurance<\/li>\n\n\n\n<li>Travel expenses<\/li>\n\n\n\n<li>Marketing costs.&nbsp;<\/li>\n<\/ul>\n\n\n\n<h3 class=\"wp-block-heading\">Capital allowances &amp; depreciation<\/h3>\n\n\n\n<p>Capital expenditure refers to money spent on <a href=\"https:\/\/swoopfunding.com\/uk\/business-glossary\/fixed-asset\/\">fixed assets<\/a> that you will keep in the business for several years. This can include computing equipment, plant equipment and furniture.&nbsp;<\/p>\n\n\n\n<p>The value of these assets will depreciate over time. So rather than being expensed in your accounts straight away, the cost of the items will be written off in the accounts over a number of years.&nbsp;<\/p>\n\n\n\n<p>For example, if you\u2019ve bought a new laptop for \u00a3600, it won\u2019t appear as a cost in your profit and loss account. Instead, it will appear on your <a href=\"https:\/\/swoopfunding.com\/uk\/business-glossary\/balance-sheet\/\">balance sheet<\/a> as a fixed asset. If you feel the depreciation will last for three years, a cost of \u00a3200 per year will be included in your profit and loss account for the following three years. After this point, the laptop will be included on your balance sheet with a cost of \u00a3600 and accumulated depreciation of \u00a3600, giving it a net book value of \u00a30.<\/p>\n\n\n\n<p>However, <a href=\"https:\/\/swoopfunding.com\/uk\/business-glossary\/depreciation\/\">depreciation<\/a> is not an allowable expense so you need to add it back into your taxable profit calculation.&nbsp;<\/p>\n\n\n\n<p>In most cases, capital asset purchases will qualify for <a href=\"https:\/\/www.gov.uk\/capital-allowances\/annual-investment-allowance\" target=\"_blank\" rel=\"noopener\">investment allowance tax relief.<\/a> The annual investment allowance (AIA) provides 100% tax relief on assets qualifying as plant and machinery, excluding cars. The allowance has changed a lot since AIA was introduced and currently stands at \u00a31 million. It can only be claimed in the year the asset is purchased.\u00a0<\/p>\n\n\n\n<h3 class=\"wp-block-heading\">Entertaining costs<\/h3>\n\n\n\n<p>You will not be able to claim tax relief or VAT on the costs associated with entertaining clients and suppliers. This includes business lunches, trips to events, and gifts.&nbsp;<\/p>\n\n\n\n<p>Make the calculation even easier with our handy <a href=\"https:\/\/swoopfunding.com\/uk\/business-loan-calculator\/corporate-tax-calculator\/\">corporation tax calculator<\/a>.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\">Example corporation tax calculation<\/h2>\n\n\n\n<p>Let\u2019s say your business has spent \u00a31,200 on capital equipment over the past year and this will depreciate at \u00a3400 a year over three years. You\u2019ve also spent \u00a3500 on entertainment costs.&nbsp;<\/p>\n\n\n\n<p>To carry out your calculation, you need to add back any depreciation and entertaining costs to the profit before accounts total. Then you must subtract any capital allowances so that you end up with the profit value that is liable to tax.<\/p>\n\n\n\n<p>Total income = \u00a3100,000 (total sales plus interest income)<\/p>\n\n\n\n<p>Total overheads = \u00a350,000<\/p>\n\n\n\n<p>Profit before accounts = \u00a350,000<\/p>\n\n\n\n<p>Add back:<\/p>\n\n\n\n<p>Depreciation = \u00a3400<\/p>\n\n\n\n<p>Client entertaining = \u00a3500<\/p>\n\n\n\n<p>Less:&nbsp;<\/p>\n\n\n\n<p>Capital allowances = \u00a31,200<\/p>\n\n\n\n<p>Profit liable to corporation tax = \u00a349,700<\/p>\n\n\n\n<p>Tax due = 19% of \u00a349,700 = \u00a39,443<\/p>\n\n\n\n<p>In this example, we\u2019ve used the 19% rate that still applies to smaller businesses with profits of \u00a350,000 or less. This is known as the small profits rate. Since April 2023, the main rate of corporation tax has risen to 25% and applies to businesses with profits of \u00a3250,000 or more. Businesses with profits of between \u00a350,000 and \u00a325,000 will be charged between 19% and 25% based on how much marginal relief they can claim. You can find out more on the <a href=\"https:\/\/www.gov.uk\/guidance\/corporation-tax-marginal-relief\" target=\"_blank\" rel=\"noopener\">gov.uk website.<\/a><\/p>\n\n\n\n<p>Also note that you can save money on your corporation tax bill by paying it early as HMRC will pay you some of it as interest at a rate of 0.5%. File it late, on the other hand, and penalties will apply. You\u2019ll pay \u00a3100 if you\u2019re a day late and another \u00a3100 if you still haven\u2019t filed after three months. After six months, HMRC will estimate your corporation tax bill and add an extra 10% of the unpaid tax. After 12 months, another 10% is added.&nbsp;<\/p>\n\n\n\n<p>HMRC will increase the penalties to \u00a3500 each if your tax return is late three times in a row.<\/p>\n","protected":false},"excerpt":{"rendered":"<p>Understanding your taxes is an important part of running a business. Taxable income has to be calculated and paid to enable your business to continue operating. The main tax that a limited company must pay is corporation tax. This is a tax on your business profits, so any money your business makes after overheads and [&hellip;]<\/p>\n","protected":false},"author":22,"featured_media":36342,"comment_status":"open","ping_status":"closed","template":"","category":[],"class_list":["post-36341","blog","type-blog","status-publish","has-post-thumbnail","hentry"],"acf":[],"featured_image_urls_v2":{"full":["https:\/\/swoopfunding.com\/na\/wp-content\/uploads\/sites\/10\/2023\/08\/corporation-featured-scaled.jpg",2560,1707,false],"thumbnail":["https:\/\/swoopfunding.com\/na\/wp-content\/uploads\/sites\/10\/2023\/08\/corporation-featured-scaled-150x150.jpg",150,150,true],"medium":["https:\/\/swoopfunding.com\/na\/wp-content\/uploads\/sites\/10\/2023\/08\/corporation-featured-scaled-300x200.jpg",300,200,true],"medium_large":["https:\/\/swoopfunding.com\/na\/wp-content\/uploads\/sites\/10\/2023\/08\/corporation-featured-scaled-768x512.jpg",768,512,true],"large":["https:\/\/swoopfunding.com\/na\/wp-content\/uploads\/sites\/10\/2023\/08\/corporation-featured-scaled-1024x683.jpg",1024,683,true],"1536x1536":["https:\/\/swoopfunding.com\/na\/wp-content\/uploads\/sites\/10\/2023\/08\/corporation-featured-scaled-1536x1024.jpg",1536,1024,true],"2048x2048":["https:\/\/swoopfunding.com\/na\/wp-content\/uploads\/sites\/10\/2023\/08\/corporation-featured-scaled-2048x1366.jpg",2048,1366,true],"image_blog":["https:\/\/swoopfunding.com\/na\/wp-content\/uploads\/sites\/10\/2023\/08\/corporation-featured-scaled-408x252.jpg",408,252,true],"image_podcast":["https:\/\/swoopfunding.com\/na\/wp-content\/uploads\/sites\/10\/2023\/08\/corporation-featured-scaled-397x298.jpg",397,298,true],"image_banking":["https:\/\/swoopfunding.com\/na\/wp-content\/uploads\/sites\/10\/2023\/08\/corporation-featured-scaled-30x20.jpg",30,20,true],"image_blog_internal":["https:\/\/swoopfunding.com\/na\/wp-content\/uploads\/sites\/10\/2023\/08\/corporation-featured-scaled-840x480.jpg",840,480,true],"image_blog_medium":["https:\/\/swoopfunding.com\/na\/wp-content\/uploads\/sites\/10\/2023\/08\/corporation-featured-scaled-1024x500.jpg",1024,500,true],"image_single_banking":["https:\/\/swoopfunding.com\/na\/wp-content\/uploads\/sites\/10\/2023\/08\/corporation-featured-scaled-80x53.jpg",80,53,true]},"post_excerpt_stackable_v2":"<p>Read this article to me Powered by AiVOOV Understanding your taxes is an important part of running a business. Taxable income has to be calculated and paid to enable your business to continue operating. The main tax that a limited company must pay is corporation tax. This is a tax on your business profits, so any money your business makes after overheads and expenses have been deducted. Here, we cover everything you need to know about calculating how much you owe. What is small business corporation tax? All limited companies registered in the UK must pay corporation tax, no matter&hellip;<\/p>\n","category_list_v2":"Uncategorised","author_info_v2":{"name":"Rachel Wait","url":"https:\/\/swoopfunding.com\/na\/author\/rachel-wait\/"},"comments_num_v2":"0 comments","_links":{"self":[{"href":"https:\/\/swoopfunding.com\/na\/wp-json\/wp\/v2\/blog\/36341","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/swoopfunding.com\/na\/wp-json\/wp\/v2\/blog"}],"about":[{"href":"https:\/\/swoopfunding.com\/na\/wp-json\/wp\/v2\/types\/blog"}],"author":[{"embeddable":true,"href":"https:\/\/swoopfunding.com\/na\/wp-json\/wp\/v2\/users\/22"}],"replies":[{"embeddable":true,"href":"https:\/\/swoopfunding.com\/na\/wp-json\/wp\/v2\/comments?post=36341"}],"version-history":[{"count":0,"href":"https:\/\/swoopfunding.com\/na\/wp-json\/wp\/v2\/blog\/36341\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/swoopfunding.com\/na\/wp-json\/wp\/v2\/media\/36342"}],"wp:attachment":[{"href":"https:\/\/swoopfunding.com\/na\/wp-json\/wp\/v2\/media?parent=36341"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/swoopfunding.com\/na\/wp-json\/wp\/v2\/category?post=36341"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}