How do I calculate the tax a company has to pay?

Corporation tax rate changes

CT rates table

For financial year (FY) 2006 starting on 1 April 2006, rates have been changed as shown in this table

 

Rates for Financial Years starting on 1 April

2005

2006

Starting Rate

0%

N/A

Starting Rate can be claimed by qualifying companies with profits at a rate not exceeding

£10,000

N/A

Marginal Starting Rate Relief Lower Limit

£10,000

N/A

Marginal Starting Rate Relief Upper Limit

£50,000

N/A

Marginal Starting Rate Relief Fraction

19/400

N/A

Small Companies’ Rate

19%

19%

Small Companies’ Rate can be claimed by qualifying companies with profits at a rate not exceeding

£300,000

£300,000

Marginal Small Companies Relief Lower Limit

£300,000

£300,000

Marginal Small Companies Relief Upper Limit

£1,500,000

£1,500,000

Marginal Small Company Relief Fraction

11/400

11/400

Non corporate distributions rate

19%

N/A

Main rate of corporation tax

30%

30%


Main rate applies when profits are at a rate exceeding £1,500,000, or where there is no claim to another rate, or where another rate does not apply.

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How do I calculate the tax for an accounting period (AP) straddling 1 April 2006?

For the purposes of calculating the starting rate, marginal starting rate relief or non-corporate distribution rate for FY 2005, the two FY parts of the AP are treated as separate APs.

There are examples below showing you how to calculate the tax for a company with an AP that starts before, but ends after, 1 April 2006, the start of FY 2006. These examples involve starting, or non-corporate distributions (NCD), rates, or marginal starting rate relief (MSRR), and APs that straddle 1 April 2006. Under the revised legislation, companies affected by these changes must treat the two FY parts of the AP as if they were separate APs.

The examples will help you to complete a paper return form as they also show the relevant box numbers on form CT600 in brackets.

Can I make a return for an AP ending on or after 1 April 2006 at any time after the AP has ended?

Yes. If you need to make a return for an AP ending on or after 1 April 2006 early, and it includes claims for starting rate or MSRR, or the NCD rate of tax, you can still use the existing paper form CT600. We have revised the CT600 Guide notes to cover periods ending on or after 1 April 2006, but the examples below will help you.

We are updating CT Online services so that they can also handle the changes. Until that happens, CT Online services cannot handle returns straddling 1 April 2006.

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Examples of calculations for APs straddling 1 April 2006, including starting rate and MSRR, or NCD rate

Example 1:

Company has profits chargeable to tax of under £10,000, no associated companies, and there are no NCDs to take into account.

AP 1 January 2006 to 31 December 2006
Description Amount
Profits chargeable to corporation tax 9000 (37)
NCDs made or treated as made 0


Apportion 9000 profits to the FYs. Use 90/365 days for the first FY (days from the beginning of the AP to 31 March 2006) and 275/365 for the second (days from 1 April 2006 to the end of the AP).

 
FY Profits Chargeable at Amount
2005 (43) 2219 (44) 0% (45) 0.00 (46)
2006 (53) 6781 (54) 19% (55) 1288.39 (56)
Corporation tax and Corporation tax chargeable £1288.39 (63 and 70)

Example 2:

Company has profits over £10,000 but under £50,000, and there are no NCDs to take into account.

AP 1 January 2006 to 31 December 2006
Description Amount
Profits chargeable to corporation tax 12500 (37)
NCDs made or treated as made 0


Apportion the profits to the FYs, using 90/365 days for the first FY (days from the beginning of the AP to 31 March 2006) and 275/365 for the second (days from 1 April 2006 to the end of the AP).

 
FY Profits Chargeable at Amount
2005 (43) 3082 (44) 19% (45) 585.58 (46)
2006 (53) 9418 (54) 19% (55) 1789.42 (56)
Corporation tax £2375.00 (63)


Company can claim MSRR for FY2005 part of AP only.

Calculate MSRR
   
[(50000/365 x 90) – 3082] x (19/400) 439.23 (64)
CT net of MSRR 1935.77 (65)
CT chargeable £1935.77 (70)

Example 3:

Company has profits of £10,000, or less, for two consecutive full year APs ending 31 March 2007.

AP 1 April 2005 to 31 March 2006
Description Amount
Profits chargeable to corporation tax 9000 (37)
NCDs made or treated as made 0


The AP is wholly within FY 2005 so you do not have to apportion profits or make separate calculations.

 
FY Profits Chargeable at Amount
2005 (43) 9000 (44) 0% (45) 0.00 (46)
Corporation tax and Corporation tax chargeable £0.00 (63 and 70)

 

AP 1 April 2006 to 31 March 2007
Description Amount
Profits chargeable to corporation tax 10000 (37)



The AP is wholly within FY 2006 so you do not have to apportion profits or make separate calculations.

 
FY Profits Chargeable Amount
FY 2006 (43) Profits 10000 (44) chargeable at 19% (45) 1900.00 (46)
Corporation tax and Corporation tax chargeable £1900.00 (63 and 70)

Example 4:

Company has profits under £50,000, has made no NCDs before 1 April 2006 in the AP but has excess NCDs brought forward from the previous AP.

AP 1 January 2006 to 31 December 2006
Description Amount
Profits chargeable to corporation tax 35000 (37)
Excess NCDs brought forward 10000



Apportion profits to FYs, using 90/365 days for the first FY (days from the beginning of the AP to 31 March 2006) and 275/365 for the second (days from 1 April 2006 to the end of the AP).

 
FY Profits Chargeable at Amount
2005 (43) 8630 (44) 19% (45) 1639.70 (46)
2006 (53) 26370 (54) 19% (55) 5010.30 (56)
Corporation tax £6650.00 (63)


Company can claim MSRR for FY2005 part of AP only.

 

Calculate MSRR
   
[(50000/365 x 90) – 8630] x (19/400) 175.70 (64)
CT net of MSRR 6474.30 (65)


The excess NCDs brought forward are treated as if they were made in FY 2005. So, next you need to work out the underlying (UL) rate of tax for FY 2005.

The calculation is the tax due on the FY 2005 profits (46) less the MSRR (64), divided by the FY 2005 profits (44), and multiplied by 100.

1639.70 (46) minus 175.70 (64), divided by 8630 (44), and multiplied by 100 = 16.96% (66).

Next, match the FY2005 profits to the NCDs. The calculation is NCDs divided by total distributions made multiplied by FY2005 profits.

 
     
10000/10000 x by 8630 (44) = 8630 (67)  
Tax at non-corporate distribution rate for FY 2005 8630 x 19% 1639.70 (68)
Tax at UL rate on remaining FY 2005 profits 8630 minus 8630 = 0 x 16.96% 0.00 (69)


For FY 2005 the corporation tax chargeable is the greater of 1639.70 (46) less 175.70 MSRR (64), or the sum of 1639.70 (68) and 0.00 (69), the NCD and UL rate tax. Here the entry for NCD tax of 1639.70 is the greater.

 
CT Amount
FY 2005 £1639.70 (68)
FY 2006 £5010.30 (56)
chargeable £6650.00 (70)

Example 5

The company has profits under £10,000 and has made NCDs before 1 April 2006.

AP 1 January 2006 to 31 December 2006
Description Amount
Profits chargeable to corporation tax 8500 (37)
NCDs made on 31 March 2006 2000


Apportion profits to FYs, using 90/365 days for the first FY (days from the beginning of the AP to 31 March 2006) and 275/365 for the second (days from 1 April 2006 to the end of the AP).

 
FY Profits Chargeable at Amount
2005 (43) 2096 (44) 0% (45) 0.00 (46)
2006 (53) 6404 (54) 19% (55) 1216.76 (56)
Corporation tax £1216.76 (63)



The NCDs were made during FY 2005. You need to work out the underlying rate of tax for FY 2005. In this case, it is simply 0% (66), as that is the rate charged, and there are no adjustments.

Next, match the FY2005 profits to the NCDs. As the NCD figure is below the FY2005 profits figure,

 
     
the matched NCD is the full amount paid 2000 (67)
Tax at non-corporate distribution rate 2000 x 19% 380.00 (68)
Tax at underlying rate on remaining profits 2096 less 2000 x 0% 0.00 (69)


For FY 2005 the NCD rate tax of 380.00 (68) is clearly more than the zero tax calculated at the starting rate (46).

 
CT Amount
FY 2005 £380.00 (68+69)
FY 2006 £1216.16 (56)
chargeable £1596.76 (70)

Example 6

The company has chargeable profits under £10,000 and has made two distributions during the AP.

AP 1 January 2006 to 31 December 2006
Description Amount
Profits chargeable to corporation tax 8500 (37)
NCDs made on 31 March 2006 3000
NCDs made on 30 June 2006 4000


Apportion the profits to the FYs, using 90/365 days for the first FY (days from the beginning of the AP to 31 March 2006) and 275/365 for the second (days from 1 April 2006 to the end of the AP).

 
FY Profits Chargeable Amount
2005 (43) 2096 (44) 0% (45) 0.00 (46)
2006 (53) 6404 (54) 19% (55) 1216.76 (56)
Corporation tax £1216.76 (63)


The company made NCDs of 3000 during FY 2005 and 4000 during FY 2006. NCD rate tax exists for FY 2005 but not for FY 2006. You need to make calculations for NCD rate tax for the FY 2005 amount, but not for the distributions made in FY 2006.

First, work out the UL rate of tax for FY 2005. In this case, it is simply 0.00% (66), as that is the rate charged, and there are no adjustments.

Next, match the FY 2005 profits to the NCDs. The calculation is NCDs divided by the total distributions made, multiplied by the FY2005 profits:

 
     
3000/3000 x 2096 = 2096 (67)
Tax at non-corporate distribution rate 2096 x 19% 398.24 (68)
Tax at underlying rate on remaining profits 2096 less 2096 x 0% 0.00 (69)


For FY 2005 the tax of 398.24 at the NCD rate is clearly greater than the zero tax calculated at the starting rate.

 
CT Amount
FY 2005 £398.24 (68+69)
FY 2006 £1216.76 (56)
chargeable £1615.00 (70)

Example 7

The company had profits over £10,000 and associated companies. The company also made NCDs before 1 April 2006.

AP 1 January 2006 to 31 December 2006
Decription Amount
Profits chargeable to corporation tax 24000 (37)
NCDs made on 31 March 2006 3000

Associated companies

For the period to 1 January to 31 March 2006 there was 1 associated company (40).

For period 1 April 2006 to 31 December 2006 there were 3 associated companies (41).

Apportion the profits to FYs, using 90/365 days for the first FY (days from the beginning of the AP to 31 March 2006) and 275/365 for the second (days from 1 April 2006 to the end of the AP).

 
FY Profit
2005 (43) 5918 (44)
2006 (53) 18082 (54)


Each FY part is treated as if it were a separate AP. To decide which rate of tax applies to each part of the company’s profits you need to take into account the associated companies in each FY part of the period and divide the limits between them.

The lower limit for starting rate tax (the first relevant amount for starting rate) for FY 2005 is £10,000. The upper limit for MSRR (the second relevant amount for starting rate) for FY 2005 is £50,000. To find out whether the company can claim starting rate or MSRR when there is 1 associated company:

  • divide the lower or upper limit between your own company and the 1 associated company for that period, then
  • apportion the resulting amount to the number of days in the deemed AP.

The lower limit for starting rate in this case for FY 2005 is (10000/2) x 90/365) = 1233.

The apportioned profits of 5918 for FY 2005 are more than this so the company cannot claim to be taxed at starting rate.

The upper limit for MSRR in this case for FY 2005 is (50000/2) x (90/365) = 6164.

The apportioned profits of 5918 are less than this so the company can claim to be taxed at small companies’ rate of 19% and claim MSRR for FY 2005.

When you carry out the calculations for FY 2006, for which there is no starting rate, MSRR or NCD rate, you are only concerned with the appropriate upper limit for claiming small companies’ rate of tax. You need to divide the limit (the lower relevant maximum amount of £300,000) between your own company plus the 3 associated companies for that period. You will find that small companies’ rate applies.

The profit limit for small companies’ rate in this case for FY 2006 is (300000/4) x (275/365) = 56507.

The apportioned profits of 18082 are clearly less than this so the company can claim to be taxed at small companies’ rate of 19% for FY 2006.

 
FY Profits Chargeable Amount
FY 2005 (43) Profits 5918 (44) chargeable at 19% (45) 1124.42 (46)
FY 2006 (53) Profits 18082 (54) chargeable at 19% (55) 3435.58 (56)
Corporation tax £4560.00 (63)


The company claims MSRR for FY2005, calculated as follows:

 
Calculation Result
[(50000/2) x (90/365) – 5918] x (19/400) = 11.70 (64)
Corporation tax net of marginal rate relief 4548.30 (65)


Next, work out the underlying rate of tax for FY 2005.
The calculation is the tax due on the FY 2005 profits (46) less MSRR (64), divided by the FY 2005 profits (44) and multiplied by 100.

 
   
1124.42 less 11.70, divided by 5918, and multiplied by 100 = 18.80% (66)
Next, match the FY 2005 profits to the NCDs. As the NCD figure is lower than the FY2005 profits figure, the matched amount is the full NCD made 3000 (67)
Then work out the tax for FY 2005 at NCD rate 3000 x 19% = 570.00 (68)

 

Now calculate the rest of the FY 2005 tax at underlying rate on remaining profits.

 
Calculation Result
5918 less 3000 = 2918 x 18.80% 548.58 (69)


For FY 2005 the corporation tax chargeable is the greater of 1124.42 (46) less 11.70 MSRR (64), or the sum of 570.00 (68) and 548.58 (69), the NCD and underlying rate tax. Here the entries for NCD and underlying rate tax, which total 1118.58, are more than the FY2005 tax less MSRR, which is 1112.71.

 
   
CT for FY 2005 £1118.58 (68+69)
CT for FY 2006 £3435.58 (56)
CT chargeable £4554.16 (70)