Introduction to this document

Corporation Tax computation

Most businesses show a monthly provision for Corporation Tax (CT). Usually this is calculated as a percentage of profit before tax (PBT). If you want a figure closer to what the actual tax charge might be, you’ll need to mirror your tax advisor’s document for calculating CT.

Board interest

Each business will have its own specifically designed profit statement as part of the management accounts. The layouts may vary depending on the type of business but all will end up with a PBT figure. This is what most MDs are interested in as they have little or no control over what comes after PBT, i.e. the tax charge. This means they might not look too closely at the tax provision you put in the monthly management accounts until it's time to pay HMRC. Then, because cash permanently leaves the business when it pays tax, your MD may have a few questions for you.


What figure should you use?

Companies are liable to CT which is charged at a variety of rates depending on the level of taxable profits. For the year to March 31 2013, CT is charged at 20% for profits up to £300,000 and a flat 24% if your company's profits are over £1.5m. Profits between £300,000 and £1.5m are taxed at 20% for the first £300,000 and then at the marginal rate of 25% for the remainder.

If your company’s profits are likely to be similar to the previous year’s, you can calculate the effective rate of tax to use by looking at last year’s accounts: (tax charge/PBT) x 100.

However, your provision will only be an estimate and your company’s tax advisors will calculate a precise figure for the current year once the financial accounts have been finalised. Use our Corporation Tax Computation to help introduce a more accurate figure into your management accounts.