A building company owner once asked me why he was facing a five-figure corporation tax bill when he had barely any money in the bank. He had invoiced a lot that year. He had also spent a lot, drawn a lot, and bought a van.

Corporation tax is charged on taxable profit. That is income earned in the period, less allowable costs. Turnover does not come into it directly, and neither does your bank balance. Money that has left the account is not automatically a cost against profit.

Three things catch people out here:

• Dividends are not a business expense. Taking £60,000 out as dividends does not reduce taxable profit by a penny.
• A van or piece of equipment is usually handled through capital allowances rather than straight off the profit line, and the timing of the purchase matters.
• Invoices raised near the year end count in that year even if the customer pays you in March.

So the starting point is not your sales figure. It is your sales figure minus everything HMRC allows you to deduct, which is a different and smaller number.

Once you have taxable profit, the rate that applies depends on where that profit sits. As of September 2026, profits of £50,000 or less are charged at the small profits rate of 19%, profits above £250,000 at the main rate of 25%, and anything in between attracts Marginal Relief, which lifts the effective rate gradually between the two.

Marginal Relief is calculated as the upper limit minus your taxable profits, multiplied by 3/200, and then taken off the tax charged at the main rate. It is not a rate you look up. It is a deduction you work out.

Two conditions change those limits, and they catch more owner-managed companies than people expect:

• If your accounting period is shorter than twelve months, both thresholds are reduced in proportion.
• If you have associated companies, the thresholds are divided between them. Three associated companies alongside your own means the lower limit drops to £12,500.

That second point matters if you have set up a second trading company or hold an interest in someone else’s. Directors often do not realise the thresholds are shared until the tax computation is done. We cover the detail in our guide to marginal relief corporation tax explained.

You do not need software to get within a few hundred pounds of the answer. You need books that are reasonably current and ten minutes.

1. Take your profit figure from your bookkeeping software for the year so far. Check the year-to-date period is right.
2. Add back anything sitting in the profit and loss that is not an allowable cost. Client entertaining is the usual one. Fines and penalties too.
3. Take out any director’s dividends that have been miscoded as an expense rather than a distribution.
4. Project the remaining months. Use your committed work, not your hoped-for work.
5. Apply the rate that fits your profit band, and adjust for associated companies if you have any.

The result is an estimate, and I would treat it as one. Capital allowances, accruals, and stock adjustments will move it. But an estimate that is a bit wrong in October is far more useful than an exact figure in the following August, because in October you can still act on it.

The reason your accountant should be doing this rather than you is that they can see the adjustments coming. The reason many do not is that they only open your file at the year end.

Once you have a number, the question becomes whether you want it to be that number. A handful of decisions genuinely change it, and all of them have to happen before the accounting period closes.

Employer pension contributions from the company are the most straightforward. They reduce taxable profit in the year paid, and the money ends up in your pension rather than HMRC’s account. Capital purchases can help, but only if you actually need the asset. Buying a van you do not need to save tax is a poor trade.

Salary and dividend mix is the other lever, and it works on both sides. Salary is a company cost, dividends are not, but dividends interact with your personal tax position. The right split depends on your profit level and what else you have going on. We work through the reasoning in salary vs dividends for a company director.

After the year end, the options narrow to almost nothing. You can still make sure everything allowable has been claimed, and that is worth doing properly. But the planning window has closed, and all that is left is paying on time.