We get it, Corporation Tax isn’t the most exciting topic. But if you wait until January to think about it, you could be in for a stressful (and potentially expensive) surprise.
That’s why August is the smart time to get ahead. With the pace a little slower, it’s the perfect opportunity to understand your Corporation Tax, estimate what you owe, and start preparing, without the panic.
Here’s what every limited company needs to know:
- What is corporation tax?
Corporation Tax is what your company pays on its profits after allowable expenses. From April 2023, the rate was set as:
- 19% if your profits are £50,000 or less
- 25% if profits are £250,000 or more
- Somewhere in between, thanks to marginal relief, if your profits fall between those two thresholds.
- Key deadlines
- Payment due: 9 months and 1 day after your financial year-end.
- Filing due: 12 months after your year-end to submit your CT600 return.
It is important that you don’t wait until these deadlines, cash planning should happen much earlier.
- How to estimate it early
Take your year-to-date Profit and Loss (P&L) report. Subtract your allowable business expenses from your income to find your estimated profit. Then apply the relevant tax rate. Even a rough estimate helps you set aside the right amount each month.
Waiting until your accountant runs the numbers in December or January could leave you scrambling for cash when deadlines are due.
- Expenses that can reduce your corporation tax bill
Make sure you’re claiming everything you’re entitled to. Common examples include:
- Business mileage (45p per mile for the first 10,000 miles)
- Home office expenses
- Software subscriptions used for business
- Pension contributions (these can be particularly tax-efficient)
Every pound of expense reduces your taxable profit, and therefore, your tax bill.
- How salary and dividends affect tax
Paying yourself a low salary and topping up with dividends is often the most tax-efficient approach.
However, this strategy can also affect your profit figure and therefore your Corporation Tax. Striking the right balance is key, especially if profits are nearing the marginal relief thresholds.
- Why planning now pays off
Starting in August gives you time to:
- Save gradually for your tax bill
- Avoid nasty surprises in January
- Make strategic decisions before your year-end
In short, early action means lower stress, better cash flow, and smarter tax planning.
Do you need help estimating your Corporation Tax? Don’t wait let’s make it part of your summer strategy. Call us on 01173 700 079 or e-mail hello@steppingstonesaccountancy.co.uk.
You can also book a free 20-minute call with Yarka – https://calendly.com/yarka-ssa/20min
