1. Determine Your Taxable Total Profits (TTP)
Corporation Tax is calculated on your company’s Taxable Total Profits (TTP), which include:(www.rossmartin.co.uk)
- Trading profits
- Investment income
- Chargeable gains (e.g., from selling assets)(UWM Accountants)
To compute TTP:(Wikipedia)
- Start with your accounting profits.
- Add back non-deductible expenses (e.g., client entertainment).
- Subtract allowable deductions (e.g., capital allowances, R&D relief).(www.rossmartin.co.uk, UWM Accountants, itcontracting.com)
Example:
- Accounting profit: £120,000
- Add non-deductible expenses: £5,000
- Subtract allowable deductions: £15,000
- TTP: £110,000
2. Apply the Appropriate Corporation Tax Rate
For the 2025/26 tax year:(Crunch)
- Profits up to £50,000: 19% (Small Profits Rate)
- Profits over £250,000: 25% (Main Rate)
- Profits between £50,001 and £250,000: Marginal Relief applies(itcontracting.com, TaxScouts, UWM Accountants)
Note: If your company has associated companies, the profit thresholds are divided by the number of associated companies.(Crunch)
3. Calculate Marginal Relief (If Applicable)
For profits between £50,001 and £250,000, Marginal Relief provides a gradual increase in the effective Corporation Tax rate.(GOV.UK)
The calculation involves a standard fraction (3/200) and considers the number of associated companies.(GOV.UK)
Example:
- TTP: £110,000
- Marginal Relief: Calculated using HMRC’s Marginal Relief formula or calculator
- Effective tax rate: Approximately 22.75%
- Corporation Tax due: £25,025(www.rossmartin.co.uk)
4. Understand Payment and Filing Deadlines
- Payment Deadline: Corporation Tax must be paid within 9 months and 1 day after the end of your accounting period.
- Filing Deadline: The Company Tax Return (CT600) must be filed within 12 months after the end of your accounting period.(itcontracting.com)
Example: For an accounting period ending on 31 March 2025:
- Payment due by 1 January 2026
- Return due by 31 March 2026
5. Utilize Allowances and Reliefs
To reduce your Corporation Tax liability, consider:(Crunch)
- Claiming capital allowances for qualifying assets
- Applying for R&D tax credits if eligible
- Utilizing the Annual Investment Allowance (AIA)
- Offsetting trading losses against profits
- Exploring the Patent Box regime for profits from patented inventions(Crunch, itcontracting.com, PwC Tax Summaries)
Frequently Asked Questions
Q1: What is the Corporation Tax rate for small companies in 2025/26?
Companies with profits up to £50,000 pay 19%.(TaxScouts)
Q2: How does Marginal Relief work?
Marginal Relief provides a gradual increase in the Corporation Tax rate for companies with profits between £50,001 and £250,000, resulting in an effective rate between 19% and 25%.(GOV.UK)
Q3: When is Corporation Tax due?
Payment is due 9 months and 1 day after the end of your accounting period.(itcontracting.com)
Q4: Are there penalties for late payment?
Yes, HMRC imposes penalties and interest for late payments and filings.
Q5: Can I reduce my Corporation Tax bill?
Yes, by claiming eligible allowances and reliefs such as capital allowances, R&D credits, and the AIA.
Conclusion
Calculating Corporation Tax involves determining your Taxable Total Profits, applying the correct tax rate, and considering any applicable reliefs. Staying informed about current rates and deadlines ensures compliance and optimal tax planning.(UWM Accountants)