How to work out your corporation tax bill before it lands

Corporation tax is charged on the company’s taxable profit, so the first job is an honest profit figure for the year to date. Take income earned in the period, take off the costs that belong to that period, and ignore what the bank balance says. The bank tells you about timing, not profit. A construction company with retentions outstanding and a VAT payment sitting in the account can look rich and be loss making, or the reverse.

Three things usually need sorting before the profit figure is worth anything:

• Work done but not yet invoiced, which belongs in this year’s income even though the cash has not arrived.
• Supplier invoices sitting in an inbox rather than in the books, which pull profit down once they are entered.
• Anything bought outright that is really an asset, such as a van or machinery, which is not a straight cost in the profit and loss and gets treated separately for tax.

Once those are in, add the months still to come. Not a wish, a reasonable estimate based on what you have already won and what you normally do in that part of the year. That gives you a full-year profit, and the tax follows from it.

The profit in your accounts is not the profit HMRC taxes. A few standard adjustments sit between them, and they are the reason an owner’s own estimate often comes out short.

Client entertaining is the common one. It is a real cost to the business and HMRC does not allow it against profit, so it gets added back. Depreciation is added back too, then replaced with capital allowances, which is the tax version of writing off equipment. Fines and most legal costs on a share purchase go the same way. Director loans and dividends are not costs at all, so they never reduce the figure, which catches people who pay themselves mainly in dividends and assume the money has been taxed on the way out.

Going the other way, capital allowances can be generous. Full expensing lets a company claim the whole cost of qualifying new main rate plant and machinery against profit in the year it is bought. From 1 January 2026 there is also a 40% first-year allowance for main rate plant and machinery, which reaches assets bought for leasing and unincorporated businesses that cannot use full expensing. The rules are set out on GOV.UK. If a van or a ramp is coming, when you buy it matters.

Since 1 April 2023 there has been no single rate for ordinary trading profits, which is where a lot of out-of-date mental arithmetic goes wrong. Profits under £50,000 are charged at the small profits rate of 19%. Profits over £250,000 are charged at the main rate of 25%. Between the two, Marginal Relief applies, with a standard fraction of 3/200, so the effective rate climbs gradually through the band rather than jumping.

Two things to watch. The thresholds are divided between associated companies, so an owner with three limited companies, one per garage site, does not get three sets of £50,000. And they are pro-rated if your accounting period is shorter than twelve months, which happens in a first year or after a year-end change.

In practice, a company making £120,000 of taxable profit is somewhere in the marginal band and its effective rate is higher than the 19% most owners still quote at us. Work it out on the real profit figure with the real thresholds and you have a number you can put in the bank account every month.

Corporation tax is due nine months and one day after the end of your accounting period. The return itself is not due until twelve months after the year end, which is the quirk that catches owners out: the money has to be paid three months before the paperwork is due. Companies with very large profits pay in quarterly instalments instead, but that is not where most owner-managed businesses sit.

So a 31 March year end means payment on 1 January. If you only hear the figure in December, the money has had nine months to be spent on something else. Set a standing transfer into a separate account from month one and the payment date becomes an admin task.

If the money is not there, talk to HMRC before the deadline rather than after it. Time to Pay arrangements exist and they are easier to agree when you approach them with a figure and a plan instead of a missed payment. We would rather never get there, which is the whole argument for working the number out early.

Knowing the number is only half of it. The point of having it in month six is that there is still time to do something sensible with it: bring forward equipment you were going to buy anyway, make the pension contribution the company was planning, set the director’s salary and dividends properly for the year, or decide that the hire can wait until the next quarter.

A construction client came to us just after his first year, turning over under £100,000, with an accountant who filed the forms and said nothing. We took over the bookkeeping, VAT, payroll and CIS and kept them current every month, built job costing so every project showed its margin before the next one was quoted, and put monthly reporting and regular calls in place. He is now past £500,000 and runs the business from his own numbers. The tax figure stopped being a surprise somewhere in year two, because it was on the table in every conversation.

That is the difference between an accountant who files and a growth accountant who helps you decide.