Corporation tax isn't as complicated as it might seem. Initially it is important to understand that unlike a sole trader or a partnership, only a limited company pays corporation tax instead of paying both income and capital gains tax. It is payable on the net profit of a company.
The net profit is calculated by deducting authorized expenses from the trading income, chargeable gains (same as capital gains) and investment income such as rent. The more tax-deductible expenses that you can put through the company the less you will pay in corporation tax. An accountant can advise you on the exact expenses that you can claim. It is important to remember that only expenses that are necessary for expenditure of the business can be deducted. For example:
Accountants and auditors fees
Advertising and marketing costs
Bad debts in the year incurred
Business bank charges
Capital allowances (For assets that are purchased by the company a capital allowance is set against the profits of the company to reduce the amount of profit on which corporation tax is payable. You see this every month on your profit and loss account as 'depreciation'.)
Dues to professional or business associations
Employee business expenses
Insurance for the business
Interest on business loans
Leasing rentals for business purposes
Legal costs on business matters
Company car (Expenses include garage rental, insurance, motoring association subscriptions, parking, fuel, road tax and general service and maintenance)
Patent application costs
Pensions provided to employees
Professional fees for advice
When and how is it paid?
For the majority of companies the accounting period is 12 months. However if your company makes up its accounts over a longer period of time if necessary the tax is split into two accounting periods, an initial 12-month period, then a second period for the remaining months.
The rate of tax is set out in the annual budget, and is fixed for the new tax year (April 6- April 5). The final corporation tax payment is made nine months after the tax year-end. Corporation tax is now self-assessed, so the tax office only makes an official demand for the money once an amount has been agreed after filing the tax return. HMRC can charge penalties for those who file late.