ABC of Accounting – Accounting for Corporation Tax

If your business is a limited company then you are liable for Corporation Tax on any profit your business makes.

When you register your company you have a legal obligation to inform HMRC. Depending on your level of expertise in the tax and accounting arena you or your accountant will also have to file your accounts along with a tax return each year irrespective of whether you have made any money, so even if you’ve made a loss you still need to submit these legal documents.

Based on any profit you do make, and please remember the calculation is based on net profit not gross the current rate of Corporation Tax is 19% and is applied for profits upto £300k.

Accounting for Corporation Tax

Once the amount of corporation tax has been calculated you can place an accrual within your accounts for this amount, debiting the profit and loss account in the year that the taxation occurred and placing the liability in the balance sheet awaiting payment. Sometimes this can be an estimate to finalise your management accounts and as soon as the correct amount has been established this can be entered.

Corporation tax is paid in arrears and once your return has been submitted you will receive confirmation back from HMRC stating the amount, when it’s due and the reference number to quote when creating your payment.

Find out more about Corporation Tax and your responsibilities

Register for Corporation Tax

Appointing someone to deal with HMRC

Your responsibilities as a Director of a limited company