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# How to Calculate Corporation Tax for Small Business?

One of the biggest parts of owning a small business is understanding your taxes. Taxable income has to be calculated and paid so that your business can continue to operate. If you’re looking to gain a better understanding of corporation tax for your business, look no further. We have all of the information you’ll need in our quick guide!

Here’s What We’ll Cover:

What Is Corporation Tax?

Who Has to Pay Corporation Tax?

How Do I Know My Company’s Tax Liability?

## What Is Corporation Tax?

Corporation tax is known by a few names. You may have heard of it as corporate income tax, or corporation business tax. Regardless, the definition is the same. Corporation taxes are the taxes taken out based on the profits of a corporation. The taxes are paid on the company’s taxable income.

## Who Has to Pay Corporation Tax?

All businesses in the UK are required to pay corporation tax. This includes the following, specifically:

• Any domestic corporation
• Any foreign corporation with a location in the UK
• A club, co-operative or other unincorporated association (like a community sports club)
• Any limited liability company

As you can see, nearly every entity acting as a trader or service company must pay corporation taxes.

## How Do I Know My Company’s Tax Liability?

Her Majesty’s Revenue and Customs (HMRC) authority regulates tax rates. This includes the corporate tax rates. For the 2021 year, the rate of taxation for corporate taxes is 19%. This makes calculating your applicable tax rate and tax liability easy, making tax payments simple.

For example, if your business makes £10,000 in profit, you can calculate your tax liability by doing the below math:

£10,000 x 0.19 = £1,900

Because the corporation tax is a flat rate, it makes calculating what you’ll owe simple. It can be done with any figure, just by multiplying it by the standard rate of 19%.

### Profits That You Pay Corporation Tax On

Any of the below profits are considered taxable income for your business. As such, you’ll be required to pay taxes on them.

• Investments (seen by investment companies, most of the time)
• Selling assets for more than they cost (real property sales that have made a profit, or ‘chargeable gains’)

If your company is foreign but has a location in the UK, it only pays taxes on activities taking place in the UK.

## How Do I Report and Pay My Taxes?

If you own a small business in the UK, you have a tax payment obligation. However, you will not receive a bill from HMRC for the amount due. You have to calculate, report, and pay your taxes on your own. If you fail to do so, your business will face penalties for not paying its taxes.

1. Register for corporation tax. This needs to be done through HMRC when you start your business, or when you start doing business again. Unincorporated associations must get in contact with HMRC.
2. Keep accounting records. You’ll need these to prepare a Company Tax Return. These are similar to individual tax returns but are for your business specifically. This will help you work out how much tax to pay.
3. After you’ve filled out your return, pay your corporation tax. You have 9 months and 1 day after your accounting period to do so. Your accounting period is normally the 12 month period covered by your annual accounts.