Corporation Tax 101: What is it and why does it matter?

If you run a limited company in the UK, corporation tax is something you need to understand and plan for. It’s the tax your company pays on its profits, and while it might seem complicated at first, knowing the basics can help you avoid mistakes and keep more of your earnings.

‍

‍

What Is Corporation Tax?

Corporation tax is a tax on the profits your company makes. This includes income from trading, investments, and selling assets. Unlike personal tax, corporation tax is calculated on the company’s accounts, not your personal income.

‍

Example: If your company makes £50,000 in profit and the corporation tax rate is 19%, you would owe £12,500 in tax.

‍

You can reduce your corporation tax on profits by considering certain additions in that year. These are called Capital Allowances, which we will cover in the next blog.

‍

Key Deadlines

Understanding deadlines is crucial to avoid fines:

• Filing your Company Tax Return: Usually within 12 months of the end of your accounting period.

• Paying corporation tax: Typically within 9 months and 1 day after your accounting period ends.

Mini tip: Set reminders in your calendar—late filing or payment can lead to penalties and interest.

‍

‍

Why Corporation Tax Matters

Corporation tax affects cash flow and planning. The earlier you understand your liability, the better you can plan for investments, salaries, and other expenses.

‍

Knowing that you will owe £12,500 in tax allows you to budget and avoid surprises at the end of the accounting period.

‍

‍

How to Keep It Simple

1. Keep accurate accounts: Use accounting software or a finance partner to track profits, expenses, and allowances.

2. Understand your allowances: Certain expenses reduce your taxable profit, which we’ll cover in more detail in the next blogs.

3. Plan ahead: Don’t wait until the last minute—forecast your tax liability monthly or quarterly to stay on top.

‍

‍

Takeaway

Corporation tax may feel daunting, but understanding the basics gives you control over your finances. By keeping accurate records, tracking deadlines, and planning ahead, you can reduce stress, avoid fines, and make strategic decisions for your business.

‍

‍

Set Yourself up for Success    

‍  

Did you know that we run the highest rated accountancy firm in Blackburn with Darwen?  

‍  

Book your 30 minute discovery call  today— enjoy a relaxed, no-obligation chat with one of our qualified accounting advisors. We can assess your situation and determine how to best serve and add value to your business.    

Alternatively, you can send us a message  with any queries (big or small), and one of our team members will get back to you promptly.

‍

‍