How Do Small Businesses Calculate Their Corporation Tax

Published January 25, 2024

Are you a small business owner? Yes – lucky you! You have the job of wearing multiple hats, from sorting out suppliers and manufacturing to marketing direction, sales navigation and admin. This is a lot for one person to manage, and you won’t be expected to know everything, especially if you’re new to the entrepreneur world. However, one thing you need to understand pretty quickly is how to calculate your corporation tax. 

In the United Kingdom, all businesses, including the smaller start-ups, are subjected to corporation tax on the profits they make each year. If you operate your business in the UK, HMRC requires you to calculate your taxable profits, in which you deduct allowable business expenses from your total income. We have seen the standard rate for corporation tax rise over the years, currently sitting at 25% for 2023/24 – this can be subject to change with government policies. 

As a business owner, you must file an annual corporation tax return, providing a detailed account of your financial activities to date. Understanding and adhering to these tax regulations is essential, so it must be done right. Do not fret; corporation tax calculators exist; however, let’s look at how small businesses can calculate their corporation tax to stay compliant.

Knowing Your Accounting Period

Firstly, you must know your accounting period – this is important. Your accounting period is the timeframe you use to report your finances to HMRC. If you’re lucky, for many smaller businesses, this timeframe aligns with the financial year, running for 12 months from the date of your incorporation, making it more memorable. To be safe, set reminders and ensure your operations and records are prepared and organised to meet the dates you must file. Missing your filing period will lead to penalties. 

Calculate Your Business Profits

Throughout the business year, you should keep a record of every business-related expense, from your rent and employee salaries to equipment costs and business travel. You will need this information when calculating your business profits and determining your corporation tax liabilities. As mentioned previously, you will be required to subtract your allowable business expenses from your total income, so having a note of your yearly outgoings is essential.

Your Deductions & Allowances

As your business is smaller, you may be entitled to multiple deductions and allowances that can help reduce your taxable profits. As the business owner, you should stay updated and informed of the latest tax legislation changes to maximise the benefits you receive. Some common alliances may include capital allowances for eligible assets such as your machinery or equipment. 

Remember The Losses

One way to significantly reduce your corporation tax liability is by inputting any losses you endured. If your business incurred losses in previous accounting periods, you may be able to carry these forward and offset them against your current profits. Please note if you decide to carry forward these losses, you may be faced with fulfilling more administrative requirements from HMRC.

Research & Development Tax Credits:

Have you engaged in any research and development activities this year? If so, small businesses are eligible for R&D tax credits. Before inputting these, ensure you read and understand the qualifying criteria and know how to claim. These R&D credits can sometimes result in a payable tax credit or be reduced from your corporation tax bill.

Submitting Your Corporation Tax

Navigating the intricacies of corporation tax can be difficult, especially for small businesses; however, timely and accurate submission is key to avoid interest or penalties. If you need a little help with this, try seeking advice from your trusted accountants or tax specialists. To ensure your corporation tax is precise, you may use a corporation tax calculator, as we mentioned earlier; either way, your filing will be a unique process to that of other business owners as business losses and expenses will vary. With the help of a professional service, you can have tailored guidance based on your business’s unique circumstances, so bear this in mind for future filing.

Understanding how to calculate corporation tax is crucial to the financial health of small businesses in the UK, so staying informed of your potential deductions, allowances and relief options is key. As a small business owner, you can optimise your tax position for the growth and success of your business by maintaining accurate records, staying organised and getting prepared. Don’t let the next filing period pass you by.


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