Calculate Corporation Tax - Example

While the example below looks overly simple, it is based on a small consultancy business. Other than adding back some expense items, the calculation flows quite simply.

Account Item




Cost of Sales


Overhead Expenses


Dividend Paid


Net Profit


Take each of the items in the corporation tax model:

Model Item



Net Profit


Reduce Expense Bill

+ £800

Entertaining is to be added back
Reduce non taxable income


Take account of cost of assets


Reduce tax for previous losses


Add back dividends

+ £6,000

Include capital gains


Taxable Profit


Effect of dividend and entertainment

Business financial year is 1st October ie six months into the financial year. Blended tax rate is therefore 50%/50% ie 20.5% Therefore corporation tax due is £6,888. Had we taken a blended rate of the original net profit the corporation tax would have been £5,494. Hence the system is increasing the tax bill as required by the regulation.

You might argue that this is overly simplistic. Perhaps, but not all that simplistic. In more complicated examples, that complexity lies in the rules behind reducing the expense bill or cost of assets. The devil will be in the detail and advice ought to be sought. Despite this I hope the model has helped explain the mechanism.