Business Taxes
Every business which seeks to make commercial gains is liable to tax on the profits. It may have additional taxes to account for depending on particular laws and regulations which apply to it.
Corporation Tax
UK companies are liable to corporation tax on the profits and chargeable gains they make. Assessment of the amounts due by them is usually defined by their financial years which are normally twelve months in length.
The starting point in calculating the tax payable by a company is to extract its accounting profit and then to make adjustments in order to arrive at a taxable profit.
Such adjustment could include certain arbitrary expense items which have a place in the accounting profit but are disallowed when viewing the tax position. Examples are depreciation, entertaining, amortisation and certain provisions which have been provided for.
Conversely to the above situation, there are frequently items which can be deducted to reduce the taxable profits which are not part of the accounting profit figure. Examples of components of this category might consist of capital allowances and actual internet paid in the year.
Once the profit chargeable to corporation tax has been calculated, the appropriate rate is applied to arrive at the amount payable.
The description above is simplistic and might apply to the most basic company which is typically small. There are many more adjustments and attributes would may have be to considered in deducing the correct corporation tax position in any given period.
Losses brought forward, capital gains and group relief are some factors which would further complicate a calculation and it is not practical to cover them here as they are firmly within the realm of a profession Accountant.
Income Tax
Income tax is payable by individual, whether as an employee or as an owner of a sole trader business or as a principle in a partnership. Companies do not pay income tax.
The principles of this tax is that all income and profits received and earned by the individual in question is added together to arrive at their total earnings figure for the tax year.
Note that income tax is chargeable from April 6th in one year to 5th April in the following year. This applies to all persons irrespective of when their business accounts are made up to.
Personal allowances, pension reliefs and other deductions are then applied with the remainder being charged at the respective and progressive income tax rates.
The complexity of an individual income tax calculation is often dependent on the types and range of earnings pertaining to the person. Items such as foreign monies which might have been taxed elsewhere or trusts where gains or losses require definition would increase both the time and the difficulty in surmising the correct income tax payable.