Starting up:
How is corporation tax calculated?
Corporation tax is charged on companies based on their profits for an accounting period. The tax rate charged, however, is based on financial years and the 2006/07 financial year runs from 1 April 2006 to 31 March 2007.
If an accounting period runs, for example, from 1 January 2006 to 31 December 2007 then one quarter of the profit would be taxed based on the rates for the financial year commencing 1 April 2005 and the remaining three quarters of the profit would be taxed based on the rates for financial year commencing 1 April 2006.
The tax calculation is quite complicated. So long as the company has received no dividend income and is not associated with another company, then the basic calculation depends on your profit level as follows:
Financial year commencing 1 April 2006
| Taxable profits | Corporation tax rate |
| Up to £300,000 | 19% |
| £300,001 to £1,500,000 | First £300,000 at 19% Remaining profit at 32.75% |
| Over £1,500,000 | 30% |
There is an extra complication that applies to companies earning annual profits of less than £50,000 which declare a dividend after 1 April 2004. The underlying rate of tax paid by these companies calculated based on the table above would be less than 19%. However, this rate does not apply to any profits that are going to be distributed to individuals, and instead the 19% rate applies.
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Where next?
Within Corporation Tax ...
Within Starting up ...
- Developing your business idea
- Your business structure
- Setting up
- Accounting systems
- Payroll and PAYE
- National Insurance contributions
- VAT
- Income tax
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