By
August 11, 2026
How to Calculate Corporation Tax for a UK Limited Company
If you run a UK limited company, understanding how to calculate Corporation Tax is an essential part of managing your business finances.
Corporation Tax is generally calculated on your company's taxable profits, not its total sales or the amount of money held in its business bank account.
In simple terms, you start with the income your company earns, deduct qualifying business expenses, make any necessary tax adjustments, account for relevant allowances and reliefs, and then apply the appropriate Corporation Tax rules.
This guide explains how Corporation Tax is calculated for a UK limited company and the key factors that can affect how much your company has to pay.
Corporation Tax is a tax that companies and certain organisations may have to pay on their taxable profits.
For a UK limited company, taxable profits can potentially arise from:
Most small businesses will primarily be concerned with profits generated from selling products or providing services.
Corporation Tax is administered by HM Revenue & Customs (HMRC).
One of the most important things for new company owners to understand is that Corporation Tax is generally calculated on taxable profit, not turnover.
Turnover represents the revenue generated by your business before relevant costs are taken into account.
Profit is what remains after expenses and other relevant amounts have been considered.
Taxable profit can then differ from accounting profit because UK tax rules determine which expenses, allowances, losses and adjustments can be included in the Corporation Tax calculation.
For example, suppose a company generates:
£150,000 in annual sales
and has:
£100,000 of qualifying business costs
The starting profit might be:
£50,000
Further tax adjustments, allowances or reliefs may then be required before the company's final taxable profit is established.
Corporation Tax would therefore not normally be calculated on the full £150,000 of turnover.
A simplified Corporation Tax calculation can be represented as:
Company income
– Allowable business expenses
± Tax adjustments
– Available allowances, losses and reliefs
= Taxable profits
The relevant Corporation Tax rules and rate are then applied to those taxable profits.
The actual calculation can be more complicated depending on the company's circumstances.
Let's look at the process in more detail.
The first step is to determine how much income the company earned during the relevant accounting period.
Depending on the business, income could come from:
Companies operating through several sales channels should ensure all relevant business income is properly recorded.
For example, an ecommerce company might receive income through its own website as well as online marketplaces and wholesale customers.
Accurate bookkeeping throughout the year makes this much easier.
Your company will normally incur costs while generating its income.
Many legitimate business costs can potentially be deducted when calculating taxable trading profits, provided they satisfy the relevant tax rules.
Examples may include:
The exact treatment depends on the type of expense and the circumstances.
An important rule to remember is:
Paying for something through your company does not automatically make it tax deductible.
Personal expenses, certain entertainment costs and other non-qualifying expenditure may not be deductible when calculating taxable profits.
Once your company's revenue and expenses have been recorded, its financial accounts will show an accounting profit or loss.
A simplified calculation might be:
Revenue: £200,000
Business costs: £135,000
Accounting profit: £65,000
However, this does not necessarily mean Corporation Tax is calculated directly on £65,000.
The next stage is to make the appropriate tax adjustments.
Accounting profit and taxable profit are not always the same.
Some expenses included in your company's accounts may not qualify as deductions for Corporation Tax purposes.
Other tax rules may require adjustments to the accounting figures.
The Corporation Tax calculation therefore starts with information from the company's accounts but makes the necessary tax adjustments to determine the company's taxable profits.
This is one reason why simply multiplying the profit shown in your accounts by a Corporation Tax rate may produce the wrong answer.
Businesses often purchase assets such as machinery, equipment, computers and other items used over several years.
The tax treatment of these purchases can differ from ordinary day-to-day expenses.
Instead, qualifying expenditure may be eligible for capital allowances.
Capital allowances can potentially reduce the amount of profit subject to Corporation Tax.
The rules and available allowances can change, so companies making significant investments should check the current HMRC guidance for the relevant accounting period.
A company does not always make a profit.
Where a company makes a qualifying trading loss, tax rules may allow that loss to be used against profits in certain circumstances.
Depending on the situation, losses may potentially be:
Restrictions and conditions can apply, so companies with significant losses should consider obtaining professional advice.
After making the relevant adjustments and considering available allowances, losses and reliefs, you can establish the company's taxable profits.
For example:
Trading income
– qualifying expenses
+ non-deductible expenses added back
– qualifying allowances or reliefs
= taxable profit
This taxable profit is the figure used to determine the Corporation Tax liability under the rules applicable to your company.
Once you know your company's taxable profits, the appropriate Corporation Tax rules can be applied.
The Corporation Tax rate applicable to a company may depend on factors such as its level of profits and other circumstances.
Rates and thresholds can also change over time.
For that reason, companies should check the current Corporation Tax rates on GOV.UK when calculating an actual tax liability rather than relying on figures from an older article.
This keeps your Corporation Tax calculation accurate even when tax rules change.
Imagine a UK limited company has the following figures for an accounting period:
Sales: £180,000
Qualifying operating costs: £110,000
The initial calculation would be:
£180,000 – £110,000 = £70,000
The company would then need to consider whether any tax adjustments are required.
For example, there could be:
After these adjustments, the company arrives at its taxable profit.
The appropriate Corporation Tax rules are then applied to calculate the final tax liability.
This example demonstrates why Corporation Tax is not simply a percentage of turnover.
Qualifying expenses reduce taxable trading profits and can therefore reduce the amount of Corporation Tax a company ultimately pays.
Common examples can include:
Salaries, employer costs and certain other employment-related expenses may qualify.
Qualifying expenditure on online advertising, marketing campaigns, website promotion and other business marketing activities may generally be deductible.
Certain accountancy, legal and professional fees incurred for business purposes may qualify.
Business software, cloud services and qualifying technology subscriptions may be deductible.
Businesses may be able to deduct qualifying costs associated with offices, commercial premises and utilities.
Businesses selling physical products may deduct relevant stock and material costs according to the applicable accounting and tax rules.
Qualifying insurance policies taken out for legitimate business purposes may generally be treated as business expenses.
Companies should retain appropriate invoices, receipts and records to support their expenses.
Generally, no.
Dividends are distributions of company profits to shareholders and are not normally treated as deductible business expenses when calculating Corporation Tax.
The company generally calculates its taxable profits and Corporation Tax liability before distributing available post-tax profits as dividends.
Directors should therefore avoid treating dividends in the same way as salaries or ordinary business expenses.
A qualifying director's salary can generally be treated as a business expense when calculating company profits.
However, paying a salary can create additional considerations, including:
The most appropriate way to take money from a company depends on individual circumstances and the tax rules in force at the time.
The amount of money sitting in your company's bank account does not determine the Corporation Tax bill.
For example, a company could have £100,000 in its bank account but have a much lower taxable profit.
Alternatively, a company might have generated significant taxable profits but have relatively little cash available because money has been spent on stock, assets or other items.
Cash balance and taxable profit are two different things.
This distinction is particularly important for new business owners.
For most UK limited companies, Corporation Tax is normally due 9 months and 1 day after the end of the relevant accounting period.
For example, if the company's accounting period ends on 31 December, the Corporation Tax payment would normally be due by 1 October of the following year.
The deadline for filing the Company's Tax Return is generally different.
A Company Tax Return is normally due 12 months after the end of the accounting period it covers.
This means the Corporation Tax payment deadline can arrive before the Company Tax Return filing deadline.
Different rules can apply to certain larger companies.
Corporation Tax can become a significant cash-flow expense if a company has had a profitable year.
Rather than waiting until the payment deadline approaches, businesses can estimate their potential tax liability throughout the year.
A simple process is:
Track revenue → Record expenses → Estimate profit → Consider tax adjustments → Estimate taxable profit → Estimate Corporation Tax
Companies may also choose to reserve money for their expected tax bill throughout the accounting period.
Good bookkeeping makes these estimates considerably easier.
Some common mistakes company owners should watch for include:
Accurate bookkeeping and regular financial reviews can help prevent many of these problems.
A new limited company does not usually owe Corporation Tax simply because it has been incorporated.
Corporation Tax becomes relevant when the company becomes active and generates taxable profits.
New companies should establish good financial records from the beginning.
Keep records of:
This makes preparing the company's first accounts and Corporation Tax calculation much easier.
Corporation Tax is also important for overseas entrepreneurs who own UK limited companies.
Living outside the UK does not automatically remove a UK company's tax obligations.
A UK company may still have Corporation Tax, accounting and reporting requirements even when its shareholders or directors live overseas.
International businesses can also create tax obligations outside the UK depending on where the company is managed, where its activities take place and other circumstances.
Owners operating businesses across multiple countries should consider obtaining professional advice on their international tax position.
Corporation Tax is generally calculated by determining the company's taxable profits and applying the relevant Corporation Tax rules and rate. Taxable profits are calculated after considering qualifying expenses, tax adjustments, allowances, losses and reliefs.
No. Corporation Tax is generally based on taxable profits rather than total company turnover.
Yes. Qualifying business expenses can reduce taxable trading profits and therefore potentially reduce the amount of Corporation Tax payable.
Generally, no. Dividends paid to shareholders are not normally deductible business expenses when calculating Corporation Tax.
Potentially. If a company has no taxable profits, or qualifying losses and reliefs eliminate its taxable profits, there may be no Corporation Tax to pay for that period.
Companies are responsible for determining their Corporation Tax liability and meeting their HMRC reporting and payment obligations. Many businesses use accountants or tax software to assist with the calculation and filing process.
Check the current Corporation Tax rates and allowances on GOV.UK. Using current official information is important because rates, thresholds and tax rules can change.
The basic Corporation Tax calculation for a UK limited company can be summarised as:
Income – qualifying expenses ± tax adjustments – available allowances and reliefs = taxable profits
The relevant Corporation Tax rules are then applied to determine how much tax the company owes.
The calculation may sound straightforward, but taxable profit can be different from the profit shown in your company's accounts.
The key is to maintain accurate financial records, correctly identify allowable business expenses, understand the difference between revenue and taxable profit, and check the latest HMRC rules when preparing your Corporation Tax calculation.
For straightforward companies, good bookkeeping can make Corporation Tax much easier to manage. For businesses with significant assets, losses, investments, multiple income sources or international operations, professional tax advice may be appropriate.
This article is provided for general information only and does not constitute tax, accounting or legal advice. UK tax rules can change and individual circumstances differ. Check current HMRC guidance or consult a qualified professional when necessary.
