How Corporation Tax Works
Limited companies pay Corporation Tax on their profits — currently 19 percent for profits up to fifty thousand pounds and 25 percent for profits above two hundred and fifty thousand pounds, with a marginal rate between these thresholds. This is different from Income Tax that sole traders pay on their personal tax returns. Corporation Tax is calculated on company profits after all allowable business expenses.
Calculating Your Taxable Profit
Start with your total revenue (Amazon sales), subtract cost of goods sold (what you paid for your stock), subtract all allowable business expenses (Amazon fees, advertising, software subscriptions, accountancy fees, travel, equipment), and the result is your taxable profit. Corporation Tax is then calculated on this figure.
Payment Deadlines
Corporation Tax is due nine months and one day after your company's financial year-end. Your Corporation Tax return must be filed within twelve months of your year-end. Missing these deadlines incurs penalties and interest. Set calendar reminders and ensure your accountant is working to these timelines.
Tax Planning Opportunities
Corporation Tax planning is about legitimately reducing your taxable profit through proper use of allowable expenses, capital allowances for equipment purchases, and pension contributions. Your accountant can advise on timing large purchases, making pension contributions through the company, and other strategies that legally reduce your tax bill.
Compared to Self-Employment Tax
The tax advantage of a limited company typically comes from paying yourself a combination of a small salary (to utilise your Income Tax personal allowance and maintain National Insurance contributions) and dividends (which are taxed at lower rates than salary). This combination often produces a lower total tax bill than being self-employed at the same profit level — though the exact savings depend on your personal circumstances.