How to Calculate Corporation Tax for a Limited Liability Company

Many small businesses tend to trade as a limited liability company as there are tax savings available, although taxes are lower now with the introduction of a new dividend tax. the Corporation tax is a tax paid by all corporations on their profits. Profits include any money made by the business after deducting expenses and overhead. Understand how to calculate your Corporation tax is very essential to ensure you meet all tax requirements. Here is a detailed guide to corporation tax:

Do you have a unique 10-digit tax reference?

The most important thing you need when you start trading is a unique 10-digit taxpayer reference. It is awarded when you register a public limited company at the House of Companies. If this number has not yet been assigned to you, contact the HMRC helpline. If you set up your business before you intend to trade, or want to register your business name, HMRC will know that your business is inactive. An inactive business is one that does not need to file a tax return. So get the unique 10-digit tax reference first.

5 steps to calculate your corporation tax

  1. First, you need to create a profit and loss account to calculate your Corporation tax. This should total all revenue generated by our business plus any interest earned.
  2. Business expenses and overheads can be deducted from the business income of the business to arrive at the profit earned by the business. To make sure you don’t pay more tax than necessary, you can hire the services of a company accountant. It can help you claim eligible expenses and deductions from income. However, according to HMRC, you can claim or deduct eligible expenses that are exclusively or entirely for business use.
  3. Capital allocations are another thing to consider here. These are the expenses incurred by your business to repair assets that would be part of your business for years. These include furniture, factory equipment, computer equipment, etc. The value of your assets will depreciate over time. For small businesses, the calculation of Corporation tax, capital purchases would qualify for tax relief through the annual investment allowance.
  4. Supplier and customer hospitality expenses, such as travel, sporting events, business lunches, free samples, gifts, etc. are not tax deductible. You cannot claim VAT or tax relief on entertainment costs.
  5. Suppose £1,800 has been spent on capital goods in that year, which depreciates at £600 a year for over three years. Let’s also assume that £1,000 was spent on customer entertainment. To calculate Corporation tax, add back any depreciation and customer representation expenses to the profit before totaling the accounts. Then subtract the depreciations to get the profit value likely to Corporation tax.

Your tax would be due at the rate of 19% on profits in this scenario. Therefore, divide the taxable profit by 100 and multiply the sum by 19 to calculate the amount of corporation tax due. For more accurate calculations, hire a limit business accountant, and get the accurate tax value.

Luisa D. Fuller