Calculating Corporation Tax is not always as simple as multiplying the profit shown in your company accounts by a tax rate. The figure in your profit and loss account is a starting point. Before calculating the tax, you need to establish the company’s taxable profits and account for any adjustments that affect the final liability.
This guide walks through the calculation using realistic examples. It shows how to move from accounting profit to taxable profit, including how depreciation and capital allowances are treated. It then covers tax on profits below £50,000, the liability when profits fall within the Marginal Relief range, and a lookup table showing the tax at common profit levels.
If you need a broader explanation of Corporation Tax rules, allowable expenses and filing requirements, read our guide to Corporation Tax for small businesses.
Quick answer: How do you calculate Corporation Tax?
For a straightforward UK company, the calculation follows four steps:
- Start with the profit shown in the company’s accounts.
- Adjust that figure to arrive at taxable profit.
- Calculate tax using the rate or rates that apply to the accounting period.
- Deduct any applicable Marginal Relief or other relevant reliefs.
For example, if a company has £40,000 in taxable profits for a 12-month accounting period and qualifies for the 19% small profits rate, its Corporation Tax would be:
£40,000 × 19% = £7,600
This is a simplified example. The calculation can be different if the company has associated companies, a shorter accounting period, different types of income or other relevant adjustments.
Step 1: Start with accounting profit, not turnover
The first figure you need is the company’s accounting profit for the relevant period.
Accounting profit is the profit recorded in the financial statements after the company’s income and expenses have been accounted for. It is not the same as turnover, cash in the bank or necessarily the amount on which Corporation Tax is charged.
Consider a company with these figures:
| Item | Amount |
| Sales and other operating income | £180,000 |
| Operating costs and other expenses recorded in the accounts | £88,000 |
| Accounting profit | £92,000 |
The company has made an accounting profit of £92,000. That does not automatically mean it will pay Corporation Tax on £92,000.
The next step is to reconcile the accounting figure with the tax treatment of the transactions recorded in the accounts.
Step 2: Calculate the company’s taxable profit
The accounting and tax rules do not always treat the same transactions in the same way. Some amounts recorded in the accounts need to be added back, while deductions available under tax rules need to be taken into account.
A useful way to approach this is to prepare a tax computation alongside the accounts. Two common adjustments for small companies involve depreciation and disallowable expenses such as client entertaining.
Worked example: depreciation and capital allowances
During the year, the company in Step 1 bought new office equipment and computers costing £8,000. In the accounts, it spreads that cost over four years, so it charges £2,000 of depreciation on the new equipment. It also charges £500 of depreciation on equipment bought in earlier years. Total depreciation in the profit and loss account is £2,500.
The company also spent £500 taking clients to dinner. This is recorded as an expense in the accounts.
For tax purposes:
- Depreciation is not deductible. It is an accounting estimate of how an asset wears out, so the £2,500 is added back.
- Capital allowances replace depreciation. Assuming the equipment qualifies for the Annual Investment Allowance (AIA) and the company can claim it in full, the £8,000 cost can be deducted for tax purposes in the year it was bought.
- Client entertaining is generally not deductible. The £500 is added back.
The tax computation looks like this:
| Calculation | Amount |
| Accounting profit | £92,000 |
| Add back: depreciation | £2,500 |
| Add back: client entertaining | £500 |
| Less: capital allowances on new equipment | (£8,000) |
| Taxable profit | £87,000 |
The resulting taxable profit is £87,000.
Why depreciation and capital allowances differ
Over the life of the equipment, the total deduction in this example is the same £8,000. What changes is the timing. The accounts spread the cost over four years, while the AIA provides the full tax deduction in year one, assuming the claim is available.
| Year | Depreciation in the accounts | Capital allowances for tax |
| Year 1 | £2,000 | £8,000 |
| Year 2 | £2,000 | £0 |
| Year 3 | £2,000 | £0 |
| Year 4 | £2,000 | £0 |
| Total | £8,000 | £8,000 |
This is why a company’s taxable profit in a year of heavy investment can be noticeably lower than its accounting profit suggests. The timing and amount of tax relief in later years will depend on the capital allowance rules applying to the assets.
A few points need checking before claiming capital allowances:
- Cars do not qualify for the AIA and have their own capital allowance rules.
- The AIA has an annual limit of £1 million, which can be restricted in certain circumstances, including some group and related-company arrangements.
- When an asset is sold, a balancing adjustment may be needed.
- Companies buying new and unused plant and machinery may be eligible for full expensing, subject to the relevant conditions.
For the official rules, see HMRC’s Annual Investment Allowance guidance.
Why this adjustment matters
Imagine that a company calculates tax on its £92,000 accounting profit without making these adjustments. Its calculation would be based on a figure £5,000 higher than the taxable profit in the example.
Within the Marginal Relief band, a £5,000 difference in taxable profit can change the estimated Corporation Tax liability by £1,325 under the simplified calculation used in this guide. The precise difference depends on the company’s circumstances and the adjustments involved.
This illustrates why the tax computation matters. An incorrect starting figure can distort the final result even when the arithmetic is correct.
For a detailed explanation of the treatment of individual costs, see our guide to business expenses small businesses can claim.
Step 3: Identify the applicable Corporation Tax calculation
For most ordinary UK companies, the relevant rates for accounting periods beginning on or after 1 April 2023 are:
| Taxable profits for a 12-month period | General treatment |
| £50,000 or less | 19% small profits rate, if eligible |
| More than £50,000 but no more than £250,000 | Main rate calculation, potentially reduced by Marginal Relief |
| More than £250,000 | 25% main rate |
These thresholds are not universal limits for every company. They can be reduced for short accounting periods and by the number of associated companies. Eligibility rules also apply.
For this article, the worked examples assume a 12-month accounting period, no associated companies, no exempt distributions affecting the calculation and no special tax treatment. The examples are designed to demonstrate the calculation rather than cover every possible company structure.
Example A: Taxable profit of £40,000
Suppose a company has taxable profits of £40,000 and qualifies for the small profits rate.
The calculation is:
£40,000 × 19% = £7,600
The estimated Corporation Tax liability is £7,600. The effective rate in this example is 19% because the entire amount is taxed at that rate.
Example B: Taxable profit of £87,000
Return to the earlier example, where the company has taxable profits of £87,000 after the depreciation, entertaining and capital allowance adjustments.
The company falls within the range where Marginal Relief may apply. It is not correct to assume that the company simply pays 19% on the first £50,000 and 25% on the balance. Instead, calculate the tax at the main rate and then work out the Marginal Relief.
- Calculate tax at 25%: £87,000 × 25% = £21,750
- Calculate Marginal Relief: (£250,000 − £87,000) × 3/200 = £163,000 × 0.015 = £2,445
- Deduct the relief: £21,750 − £2,445 = £19,305
The estimated Corporation Tax liability is £19,305. The effective rate is approximately 22.19% of the £87,000 taxable profit.
This example uses a simplified Marginal Relief calculation because taxable profits and augmented profits are assumed to be equal. In an actual company tax computation, the calculation can be more involved.
Example C: Taxable profit of £120,000
Now suppose the company has taxable profits of £120,000, with the same assumptions.
- Calculate tax at 25%: £120,000 × 25% = £30,000
- Calculate Marginal Relief: (£250,000 − £120,000) × 3/200 = £130,000 × 0.015 = £1,950
- Deduct Marginal Relief: £30,000 − £1,950 = £28,050
The estimated Corporation Tax liability is £28,050.
This demonstrates why companies in the Marginal Relief range need to calculate the relief rather than apply a single headline percentage to their profits.
For the official rules and calculation method, refer to HMRC’s Marginal Relief guidance.
Corporation Tax on common profit levels: lookup table
The table below shows the estimated Corporation Tax at common taxable profit levels. It uses the same assumptions as the worked examples: a 12-month accounting period, no associated companies, eligibility for the small profits rate, and taxable profits equal to augmented profits.
| Taxable profit | Tax at headline rate | Marginal Relief | Estimated Corporation Tax | Effective rate |
| £30,000 | £5,700 (19%) | £0 | £5,700 | 19.00% |
| £50,000 | £9,500 (19%) | £0 | £9,500 | 19.00% |
| £60,000 | £15,000 (25%) | £2,850 | £12,150 | 20.25% |
| £75,000 | £18,750 (25%) | £2,625 | £16,125 | 21.50% |
| £100,000 | £25,000 (25%) | £2,250 | £22,750 | 22.75% |
| £125,000 | £31,250 (25%) | £1,875 | £29,375 | 23.50% |
| £150,000 | £37,500 (25%) | £1,500 | £36,000 | 24.00% |
| £200,000 | £50,000 (25%) | £750 | £49,250 | 24.63% |
| £250,000 | £62,500 (25%) | £0 | £62,500 | 25.00% |
| £300,000 | £75,000 (25%) | £0 | £75,000 | 25.00% |
The £30,000 and £50,000 examples use the 19% small profits rate, assuming the company qualifies. Marginal Relief is not applied to those two examples. The other figures illustrate the simplified Marginal Relief calculation where it applies.
The 26.5% marginal rate
The effective Corporation Tax rate rises gradually from 19% to 25% across the Marginal Relief band. However, each additional pound of profit between £50,000 and £250,000 is taxed at an effective marginal rate of 26.5% under the standard assumptions used here.
You can see this in the table. Profit rises by £10,000 between £50,000 and £60,000, while the tax rises by £2,650, which is 26.5% of the increase.
This is why accurate adjustments matter in this band. In the Step 2 example, missing the £5,000 of adjustments would overstate the tax by £1,325 under the simplified calculation. It also explains why the timing of expenses and capital investment can have a bigger effect for companies with profits in this range.
The figures are estimates for illustration. If the company has associated companies, a short accounting period or dividends received that increase augmented profits, the thresholds and relief will differ.
Step 4: Check whether the simple calculation applies to your company
The examples above are useful for understanding the maths, but some companies need a more detailed computation. Before relying on a figure, check the following points.
Does the accounting period cover 12 months?
The £50,000 and £250,000 limits are reduced proportionately for an accounting period shorter than 12 months. A company with a shorter period should not automatically use the full thresholds in the examples.
Does the company have associated companies?
The thresholds can also be divided by the number of associated companies, including the company itself. This can affect which rate applies and the amount of Marginal Relief available.
For example, a company with three associated companies in addition to itself generally divides the relevant limits by four, subject to the detailed rules. This can bring the lower and upper limits down to £12,500 and £62,500 for a 12-month period.
Associated-company status is a tax-specific question. It should be checked rather than decided solely by looking at whether companies share a trading name.
Does the company have different types of income or tax adjustments?
A company may have income, distributions, gains, reliefs or other items that affect its tax computation. The simple worked examples do not cover every possible treatment.
If your company has several income streams, group relationships, brought-forward losses or substantial asset disposals, a basic percentage calculation may not give you the correct liability.
Does the accounting period cross a rate-change date?
Corporation Tax rates apply by reference to the relevant financial years. Where an accounting period spans different rate periods, the calculation may require an apportionment rather than applying one rate to all profits.
For the current rates and relevant dates, check HMRC’s Corporation Tax rates and allowances.
Step 5: Reconcile your estimate with the company tax computation
Once you have calculated an estimate, keep a clear record of how you reached it. A useful working paper should show:
- The accounting profit used as the starting figure.
- Each adjustment made to arrive at taxable profit, such as depreciation added back and capital allowances claimed.
- The applicable rate calculation.
- The Marginal Relief calculation, if relevant.
- Any other reliefs or adjustments included in the final computation.
- The resulting Corporation Tax liability.
This makes the figure easier to review against the accounts and the Company Tax Return. It also helps identify where an estimate differs from the final tax computation.
Do not treat the tax estimate as a substitute for preparing the company’s actual Corporation Tax calculation. The return must reflect the company’s circumstances and the tax rules applying to its accounting period.
Common mistakes when calculating Corporation Tax
- Using turnover instead of profit. Turnover is the income generated by the business. It is not the amount on which Corporation Tax is normally calculated.
- Applying the rate to accounting profit without adjustments. The accounts are the starting point, not necessarily the final tax figure.
- Treating depreciation as a tax deduction. Depreciation must be added back. The tax deduction for qualifying assets comes through capital allowances instead.
- Assuming every company uses the same thresholds. Associated companies and shorter accounting periods can affect the limits.
- Ignoring Marginal Relief. A company within the relevant profit range may qualify for relief, but the amount needs to be calculated correctly.
- Using a calculator without checking the assumptions. An online calculator is only as reliable as the figures and circumstances entered into it.
- Confusing an estimate with the final liability. The final figure depends on the completed tax computation and the company’s specific circumstances.
Can an accountant calculate Corporation Tax for a limited company?
Yes. An accountant can reconcile the company’s accounts to its taxable profits, review the relevant tax adjustments, calculate the liability and prepare the supporting tax computation and return.
This is particularly useful when a company has associated companies, capital investment, losses, several income sources or profits within the Marginal Relief range.
Adroit Accountax provides limited company accounting support and accounting services in London, including support with company accounts, Corporation Tax and ongoing financial records. Small businesses can also explore our small business accounting services and accounting services in London.
Accurate bookkeeping throughout the year makes the calculation easier because the figures used in the tax computation can be traced back to the underlying transactions. If your records need attention, our bookkeeping services can help you maintain more reliable financial information.
Frequently asked questions
How do I calculate Corporation Tax on £50,000 profit?
If £50,000 is the company’s taxable profit for a qualifying 12-month accounting period, and the company is eligible for the small profits rate, the calculation is £50,000 × 19% = £9,500. Check the company’s eligibility and associated-company position before relying on this figure.
How do I calculate Corporation Tax on £100,000 profit?
For a company with £100,000 in taxable profits, no associated companies and a 12-month accounting period, the simplified calculation is £25,000 at the main rate, less £2,250 Marginal Relief. The estimated liability is £22,750, assuming taxable profits equal augmented profits and no other adjustments apply.
Is Corporation Tax calculated on accounting profit or taxable profit?
It is calculated on taxable profits. Accounting profit is the starting point, and the tax computation adjusts it where the tax rules require a different treatment.
Can I calculate Corporation Tax myself?
You can estimate the liability using your accounts and HMRC’s guidance. However, you need to identify the correct taxable profit, check the applicable rates and determine whether Marginal Relief or other adjustments apply. More complicated circumstances may require professional help.
Why is my Corporation Tax calculation different from my accountant’s figure?
The difference may arise from adjustments to accounting profit, capital allowances, associated companies, the accounting period, Marginal Relief or other tax-specific items. Ask for a reconciliation showing how the accounting profit becomes taxable profit and how the final liability is calculated.
Need help calculating your company’s Corporation Tax?
A reliable calculation starts with accurate accounts and a tax computation that reflects your company’s circumstances. If you want support with the calculation, return preparation and the records behind it, explore Adroit Accountax’s small business accounting services or limited company accounting services.
The aim is not just to produce a number. It is to understand how that number was reached and have the working behind it to support the return.
Editorial note: The worked examples and lookup table assume standard UK non-ring-fence profits, a 12-month accounting period, no associated companies and no other adjustments beyond those stated. Check the calculation against current HMRC guidance before filing a Company Tax Return.
