Calculating Corporation Tax Pro-Rata
The UK government’s financial year goes from April 1st to March 31st. Company financial year starts often differ from this though, in which case annual taxable profits are broken down into two tax periods with corporation tax allowances, thresholds and rates calculated on a pro rate basis.
Corporation tax is levied on the taxable profit not the net pre-tax profit shown in the profit and loss or net income statement. The best way to understand how this works is to take a look at the Figurewizard sample corporation tax forecast which illustrates a step-by-step breakdown of the process.
UK Corporation Tax Rates and Thresholds from 1971
| From April 1st. | Starting Profit Limit | Small Rate Profit Limit | Starting Rate of Tax | Small Profit Rate of Tax | Standard Rate of Tax |
| 1971 | - | - | - | 40% | 40% |
| 1972 | - | - | - | 40% | 40% |
| 1973 | - | 25,000 | - | 42% | 52% |
| 1974 | - | 25,000 | - | 42% | 52% |
| 1975 | - | 30,000 | - | 42% | 52% |
| 1976 | - | 40,000 | - | 42% | 52% |
| 1977 | - | 50,000 | - | 42% | 52% |
| 1978 | - | 60,000 | - | 42% | 52% |
| 1979 | - | 70,000 | - | 40% | 52% |
| 1980 | - | 80,000 | - | 40% | 52% |
| 1981 | - | 90.000 | - | 40% | 52% |
| 1982 | - | 100,000 | - | 38% | 52% |
| 1983 | - | 100,000 | - | 30% | 50% |
| 1984 | - | 100,000 | - | 30% | 45% |
| 1985 | - | 100,000 | - | 30% | 40% |
| 1986 | - | 100,000 | - | 29% | 35% |
| 1987 | - | 100,000 | - | 27% | 35% |
| 1988 | - | 100,000 | - | 25% | 35% |
| 1989 | - | 150,000 | - | 25% | 35% |
| 1990 | - | 200,000 | - | 25% | 34% |
| 1991 | - | 250,000 | - | 25% | 33% |
| 1992 | - | 250,000 | - | 25% | 33% |
| 1993 | - | 250,000 | - | 25% | 33% |
| 1994 | - | 300,000 | - | 25% | 33% |
| 1995 | - | 300,000 | - | 25% | 33% |
| 1996 | - | 300,000 | - | 24% | 33% |
| 1997 | - | 300,000 | - | 21% | 31% |
| 1998 | - | 300,000 | - | 21% | 31% |
| 1999 | - | 300,000 | - | 20% | 30% |
| 2000 | 10,000 | 300,000 | 10% | 20% | 30% |
| 2001 | 10,000 | 300,000 | 10% | 20% | 30% |
| 2002 | 10,000 | 300,000 | 0% | 19% | 30% |
| 2003 | 10,000 | 300,000 | 0% | 19% | 30% |
| 2004 | 10,000 | 300,000 | 0% | 19% | 30% |
| 2005 | 10,000 | 300,000 | 0% | 19% | 30% |
| 2006 | - | 300,000 | - | 19% | 30% |
| 2007 | - | 300,000 | - | 20% | 30% |
| 2008 | - | 300,000 | - | 21% | 28% |
| 2009 | - | 300,000 | - | 21% | 28% |
| 2010 | - | 300,000 | - | 21% | 28% |
| 2011 | - | 300,000 | - | 20% | 26% |
| 2012 | - | 300,000 | - | 20% | 24% |
| 2013 | - | 300,000 | - | 20% | 23% |
| 2014 | - | 300,000 | - | 20% | 21% |
| 2015 | - | N/A | - | 20% | 20% |
| 2016 | - | N/A | - | 20% | 20% |
| 2017 | - | N/A | - | 19% | 19% |
| 2018 | - | N/A | - | 19% | 19% |
| 2019 | - | N/A | - | 19% | 19% |
| 2020 | - | N/A | - | 17% | 17% |
Forecasting Corporation Tax
Figurewizard forecasts will apply these rates of corporation tax based upon your finanical year start date.
The value of corporation tax payable and subsequent payment will have a significant effect on liquidity and cash flow, which is why accurate forecasts for these are essential for any business plan.
Taxable Profit
When forecasting using Figurewizard you will see that the tax as a percentage of pre-tax profit will differ from the rate or rates applicable.
That is because the taxable profit is different. For example depreciation is not accepted as a charge, which is substituted for by capital allowances. Similarly "provisions" such as for bad debts are excluded because no explicit transfer or commitment to transfer cash is involved.
Marginal Relief
Up to 2015 a company with taxable profits that were greater than £300,000 and not more than £1,500,000 were entitled to claim additional tax relief by way of marginal relief. As corporation tax for all company profits regardless of size is now unified, marginal relief now no longer applies.
In his 2016 Autumn budget Chancellor Phillip Hammond retained the projected rates of corporation tax previously announced by George Osborne - e.g. The tax will be reduced to 17% by 2020.
This commitment to the new unified tax rate was reaffirmed in the Spring budget of March 2017.
what were the starting rates of corporation tax. were these only for start ups.
The "starting rate" of corporation tax applied to all companies with taxable profits not exceeding £10,000. It was certainly a very useful concession to allow many start up and young businesses to invest in growth but was inexplicably scrapped in 2005.
I have run forecasts using Figurewizard and the profit and loss account is showing corporation tax deducted as being 17.7% of net profit instead of 20%. Why is that?
Have you checked the corporation tax calculation page? This shows how your net profit is turned into a taxable profit by adding back provisions such as depreciation and most importantly reducing your tax liability with the application of annual investment allowances (AIA) and Capital allowances.
Hi, we're looking at Figure Wizard as an alternative to out current forecasting software - we have a couple of clients where not all the turnover is subject to corporation tax, some of it is considered non trading. Can Figure Wizard cope with this? Is there a way to stop it applying corporation tax to some of the profits? Thanks
Presumably you are referring to investments that are unconnected with your clients' trading. Figurewizard is only concerned with enabling its users to forecast profits, cash flow and so on from their trading. Corporation tax is levied on all profits though and in the case of profits from investments unconnected with trading (e.g. interest receivable) it is payable even if the company has recorded a loss in its financial year / period. Corporation tax is not levied on "turnover" by the way.
Why doesn't the UK lower the corporate tax to 0% and help show the rest of the world the way to increased prosperity and economic freedom? Most people don't realize that the company tax is just a type of individual tax. All companies are owned by individuals; thus all company taxes are ultimately paid by individuals. It's that simple. The problem with this type of individual tax is that in this competitive world corporate taxes are a disincentive for a company to locate jobs in a place. Jobs not only provide income but pay a whole range of taxes. For the couple cents on the GDP dollar that corporate taxes generate, we're being incredibly penny-wise but pound foolish. Eliminate corporate taxes entirely and let the money flow on to individuals where it will be taxed. We in western economies have got to stop scaring away our golden geese.
Before scrapping corporation tax I would like to see the employer's contribution (I use the word contribution lightly) to national insurance go. It is nothing more than a tax on jobs.
I'm very impressed by the way figurewizard can accurately calculate taxable profits and corporation tax simply from my predictions for sales and so on. How do you do it?