A company’s own tax year (also known as its ‘accounting period’) may end on any date, for example 31 December, 31 March etc.

Corporation tax, on the other hand, is calculated according to financial years. Financial years run from 1 April to 31 March. The 2017 financial year is the year starting on 1 April 2017 and ending on 31 March 2018.

This matters when it comes to calculating how much tax your company will pay if the corporation tax rate has changed.

For example, on 1 April 2017 the corporation tax rate fell from 20% to 19%. A company whose accounting period runs from January 2017 to December 2017 will therefore pay corporation tax as follows:

• 3 months to 31 March 2017 20%
• 9 months to 31 December 2017 19%The practical effect is that the company will pay 20% corporation tax on approximately one quarter of its profits and 19% tax on three quarters of its profits. (It doesn’t matter at what point during the financial year the profits are actually made.) This means the company’s effective corporation tax rate will be 19.25%.

  A company whose accounting period runs from 1 August 2016 to 31 July 2017 will pay corporation tax as follows:

• 8 months to 31 March 2017 20%
• 4 months to 31 July 2017 19%Thus the company will pay 20% corporation tax on two thirds of its profits and 19% tax on one third of its profits. This means the company’s effective corporation tax rate will be 19.67%.

  A company whose accounting period runs from 1 April 2017 to 31 March 2018 will simply pay 19% corporation tax on all of its profits.