Most people who set out to calculate corporation tax get the rate right and the base wrong. The rate is published and there are only two of them; the difficult part is arriving at the taxable profit the rate applies to, because that figure is not the profit in your accounts. This page runs the corporation tax calculation in the order HMRC's own return runs it, so each adjustment lands where it belongs.
Start from accounting profit, not from turnover
The starting point is the profit before tax in the company's statutory accounts for the accounting period. From there you add back anything charged in the accounts that is not deductible for tax, of which depreciation is nearly always the largest, along with entertaining, most fines, and any general provision that is not specific. You then deduct the things tax allows that the accounts do not, which is principally capital allowances: the tax system's own version of depreciation, given at published rates on qualifying plant and machinery. The number you are left with is trading profit for tax purposes.
Add other income, then take the reliefs
Trading profit is not the whole base. Property income, non-trading loan relationship profits such as bank interest, and chargeable gains on disposals all sit alongside it. Against the total you set the reliefs the company is entitled to: losses brought forward or carried back, group relief surrendered by another company in the group, qualifying charitable donations, and R&D relief if the company has made a claim. Patent box, if it applies, does not reduce the profit but taxes a slice of it at a lower rate. What remains after all of that is the taxable profit the rate is applied to.
Apply the rate, then check the thresholds
Now the arithmetic is short. Above £250,000 of profit the main rate of 25% applies to the whole figure. At £50,000 or below, the small profits rate of 19% does. In between, you charge the main rate and then deduct Marginal Relief. Before you decide which band you are in, divide both thresholds by the number of associated companies and pro-rate them for a period shorter than twelve months, because that division happens before the comparison, not after it. If your accounting period straddles 1 April and the rates changed, split the profit by days and compute each part at the rate for its financial year.
A worked corporation tax calculation
Take a company with £180,000 of profit before tax, £22,000 of depreciation added back, £30,000 of capital allowances claimed, no associates and a twelve-month period to 31 March. Taxable profit is £180,000 plus £22,000 less £30,000, or £172,000. That sits between the two thresholds, so the main rate applies and Marginal Relief is deducted: 25% of £172,000 is £43,000 before relief. The relief is what turns that into an effective rate below 25%, and it is the reason the same company would face a very different bill if it controlled three other companies, because the upper limit would then be £62,500 and no relief would be available at all.
Questions people ask about calculate corporation tax
Is corporation tax calculated on turnover or profit?
On taxable profit, never on turnover. Taxable profit starts from the accounting profit, adds back non-deductible costs such as depreciation, deducts capital allowances and other tax reliefs, and includes property income and chargeable gains.
Why does my tax bill not match 25% of my accounts profit?
Because the base differs from the accounts and the rate may not be the main one. Depreciation is added back and capital allowances deducted in its place, and if profit is under £250,000 Marginal Relief or the 19% small profits rate applies.
What if the rate changed during my accounting period?
Work out how many days each rate applied for and compute the tax due for each part separately. GOV.UK sets this out directly: the rate you pay is the rate that applied in the company's accounting period, so a period spanning 1 April is split by days.