Corporation tax

Corporation tax is the tax that is levied on company’s profits.

For a small company, with a profit up to £300,000 the rate of tax is 20%, although there are many items that would be an expense for your business that are not ‘allowable’ for corporation tax. Typical business expenses which are not allowable include:

  • Any personal expenses: including travel to work that’s normal commuting and other non-business travel, clothes, living expenses and fines such as parking tickets.
  • Entertainment: including food or drink bought for clients – this one often surprises clients who consider entertaining clients to be a genuine business expense. Sadly, HMRC does not agree.
  • Buying equipment or premises is not an allowable expense – but those purchases may well be covered by the capital allowance and Annual Investment Allowance (AIA). The AIA is particularly generous as it gives you 100% tax relief on qualifying plant and machinery used in your business.
  • Depreciation of assets is not an allowable expense
  • Dividends

When is Corporation Tax due?

Corporation tax is due to be paid 9 months and 1 day after the end of your accounting period. So if you draw up your company’s year-end ends on the 31st March, then any corporation tax owing is due by the 1st January following.

One snag that often catches out companies, is that the actual tax return is due to be filed 12 months after the company’s year end. So – in the case above, the company is due to file its return by the 31st March following, but any tax it is due to pay is actually due before the return is due! In practice for small businesses it is always worth getting the return prepared before any tax that may be due and not waiting for the filing date.