School boy question on CT

[ApeShape]

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For simplicity's sake, say I made 100k in profit (I wish) I would have a CT liability of 19k

Say I managed to spend exactly 19k allowables, hotels, laptops, business machines with quad graphic cards etc etc would that mean I would have successfully eliminated all my CT liability due? Job done? Or am I over simplifying this.

[jamesbrown]

No, because you get relief at 19% of 19k, not 100% of 19k. In other words, you can take 19k from your 100k profit and suffer CT at 19% of 81k or 15.4k.

[Craig@Clarity]

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For simplicity's sake, say I made 100k in profit (I wish) I would have a CT liability of 19k

Say I managed to spend exactly 19k allowables, hotels, laptops, business machines with quad graphic cards etc etc would that mean I would have successfully eliminated all my CT liability due? Job done? Or am I over simplifying this.

You'd need expenses totally £100k to wipe out £100k profit and eliminate any CT liability.

[ApeShape]

It still doesn't make sense to my thick head....Ugh. I understand expenses 'reduce' CT liability. So rather than reduce my profits I'm reducing my CT liability, up until a point? 19% the profit but only up until 19% that 19% profit?

Some napkin maths -

I make 100k in profits.
My liability is 19k in Corp tax.
I end up with 81k once the CT balance is cleared.

Or, I stay in the Ritz for two nights costing the business 9k
My liability is now 9k less due to my amazing taste in hotels
I end up with only having to pay 10k in CT

So I end up with 90k left in the company, rather than 81k?

I'm a maths prodigy.

[hobnob]

Your profit is calculated as income minus expenses. In your Ritz example, your company profits would now be £91,000 so you would pay £17,290 in corporation tax. I.e. you'd pay £9000 to the hotel instead of £1710 to HMRC, which probably isn't worthwhile

[jamesbrown]

It still doesn't make sense to my thick head....Ugh. I understand expenses 'reduce' CT liability. So rather than reduce my profits I'm reducing my CT liability, up until a point? 19% the profit but only up until 19% that 19% profit?

Some napkin maths -

I make 100k in profits.
My liability is 19k in Corp tax.
I end up with 81k once the CT balance is cleared.

Or, I stay in the Ritz for two nights costing the business 9k
My liability is now 9k less due to my amazing taste in hotels
I end up with only having to pay 10k in CT

So I end up with 90k left in the company, rather than 81k?

I'm a maths prodigy.

Your liability isn't reduced by £9k. It is reduced by 0.19 * £9k = £1,710. So your liability remains £19k - £1,710 = £17,290 or (£100k - £9k) * 0.19 = £17,290.

It is really simple. If you have a legitimate business expense for CT purposes, you will save 19% of that expense, which would otherwise have been paid in CT, not 100% of that expense.

[northernladuk]

It still doesn't make sense to my thick head....Ugh. I understand expenses 'reduce' CT liability. So rather than reduce my profits I'm reducing my CT liability, up until a point? 19% the profit but only up until 19% that 19% profit?

Some napkin maths -

I make 100k in profits.
My liability is 19k in Corp tax.
I end up with 81k once the CT balance is cleared.

Or, I stay in the Ritz for two nights costing the business 9k
My liability is now 9k less due to my amazing taste in hotels
I end up with only having to pay 10k in CT

So I end up with 90k left in the company, rather than 81k?

I'm a maths prodigy.

I can't believe what I am reading.

[Lance]

I can't believe what I am reading.

neither can I. I had to blink and re-read as I assumed I'd missed an important piece of information.

@OP - what does your accountant say? He probably needs a chuckle as well

[northernladuk]

neither can I. I had to blink and re-read as I assumed I'd missed an important piece of information.

@OP - what does your accountant say? He probably needs a chuckle as well

He doens't even need to do that. There are GCSE bitesize revision articles that cover this, and if this is his level of knowledge, a whole host of other stuff he clearly won't know. To come on a prof contractor forum and ask this is... well...

[vwdan]

Easy to mock, but a shockingly common belief. I had somebody tell me that Starbucks asking for charity donations was a scam because it let them pay less corporation tax...