How to Calculate Corporation Tax

If you run a limited company in the UK, one of your most important responsibilities is calculating and paying Corporation Tax correctly. While HMRC doesn’t send a bill or reminder, it’s still up to you to work out how much tax your business owes based on its profits.

Getting the Corporation Tax calculation right is not just about applying the correct rate—it requires a solid understanding of what counts as allowable expenses, which reliefs apply, and how to structure your finances for maximum efficiency. That’s where the insight of experienced limited company accountants becomes invaluable. We help directors navigate every step of the process, from year-end planning and profit forecasting to tax-saving strategies like pension contributions, capital allowances and marginal relief. With our expert guidance, you can rest assured your tax position is accurate, compliant and working in your company’s best interests.

Whether you’re preparing your first set of company accounts or want to check your figures before paying, this guide explains how to calculate Corporation Tax step by step. We’ll cover what counts as taxable profit, which expenses can be deducted, and how the different tax rates apply—so you can approach it with confidence and accuracy.

Unsure when your corporation tax payment is expected? Learn when corporation tax is due.

Step 1: Work Out Your Company’s Taxable Profit

Corporation Tax is based on your company’s taxable profit, not its total income. To calculate taxable profit, you start with your turnover (all income from sales or services) and subtract allowable business expenses.

Allowable expenses include:

• Salaries and pensions

• Rent, utilities and office costs

• Professional fees

• Marketing and subscriptions

• Travel and mileage

• Business insurance

• Software and IT costs

If your company bought assets like equipment or vehicles, you may also claim capital allowances, which reduce your taxable profit.

You must also add back any disallowed expenses, such as client entertainment, fines, or personal costs that were incorrectly included. This ensures you’re only deducting costs that HMRC allows.

Step 2: Identify the Right Corporation Tax Rate

From April 2023 onwards, Corporation Tax in the UK is charged at different rates depending on your company’s profits:

• 19%: If your profits are £50,000 or less

• 25%: If your profits are over £250,000

• Marginal Relief: If your profits fall between £50,001 and £250,000, you’ll pay a tapered rate between 19% and 25%

If you have any associated companies (such as another company under the same ownership), these thresholds are divided equally between them, which can reduce the limit before higher tax kicks in.

Step 3: Apply the Tax Rate to Your Profit

Once you know your taxable profit and the applicable rate, you can calculate the tax due.

Example 1 – Small Company:
Profit: £45,000
Rate: 19%
Corporation Tax = £45,000 x 0.19 = £8,550

Example 2 – Large Company:
Profit: £275,000
Rate: 25%
Corporation Tax = £275,000 x 0.25 = £68,750

Example 3 – Mid-Range Company with Marginal Relief:
Profit: £120,000
Marginal relief applies
Effective tax rate: around 22.75% (calculated using HMRC’s formula or calculator)
Corporation Tax = approx. £27,300

HMRC provides an online marginal relief calculator for companies with profits in the tapering band.

Step 4: Adjust for Any Tax Reliefs or Losses

Before finalising your tax bill, apply any relevant reliefs or previous trading losses your company may be entitled to. These might include:

• Loss relief carried forward from earlier years

• Research and Development (R&D) tax relief, if your company qualifies

• Patent Box relief for income from qualifying patents

• Charitable donations, which can be deducted from profit

These reliefs reduce the amount of tax your company needs to pay and can make a significant difference to the final figure.

Step 5: Report and Pay Your Corporation Tax

Once you’ve calculated your Corporation Tax, you need to:

1. Submit your Company Tax Return (CT600) online through HMRC

2. Pay the tax owed within 9 months and 1 day of your company’s year-end

The tax return itself must be filed within 12 months of your year-end, but your payment is due earlier—so it’s best to calculate and pay the tax well in advance.

If you’ve already run the numbers and want to pay, check how to pay corporation tax.

What if Your Company Made a Loss?

If your company made a loss, there may be no Corporation Tax to pay. But you may still need to submit a return and can often carry forward the loss to offset against future profits.

In some cases, you can carry the loss back to a previous year (if the company was trading then) and claim a tax refund.

Real-World Example

Imagine a web design agency with:

• Turnover: £110,000

• Allowable expenses: £70,000

• Capital allowances: £10,000

• Disallowed expenses: £2,000

Calculation:

• Start with turnover: £110,000

• Subtract allowable expenses: £110,000 – £70,000 = £40,000

• Subtract capital allowances: £40,000 – £10,000 = £30,000

• Add back disallowed expenses: £30,000 + £2,000 = £32,000 taxable profit

• Apply 19% rate: £32,000 x 0.19 = £6,080 Corporation Tax due

Final Thoughts

Calculating Corporation Tax correctly is vital for staying compliant, avoiding penalties and ensuring your company only pays what it owes. By understanding what counts as taxable profit, which rate applies, and how to apply reliefs, you’ll be able to work out your Corporation Tax with clarity and confidence.

For complex cases, especially when marginal relief or multiple companies are involved, it’s wise to seek advice from a professional accountant. If you're running a small company, especially as a single director or micro-business, it's easy to underestimate the complexity behind a simple tax calculation. But even at lower profit levels, missing out on reliefs or misclassifying costs can result in paying more tax than necessary. Our dedicated small company accountant service is built around the unique needs of smaller businesses, providing clear, affordable advice and hands-on support to help you calculate Corporation Tax correctly, keep records in order, and plan ahead with confidence.

If you’d like to explore related tax content, check out our Corporation Tax Help hub.