Finance Guide

Corporation Tax is a tax levied on the profits of incorporated companies. In most countries, companies must file accounts with the government each year, reporting their income, expenditures and profits over the 12-month period. Typically, there are penalties, including fines and even imprisonment if the directors of the company fail to file accounts in a timely and accurate fashion.

Corporation tax is usually levied as a standard single rate, rather than in a graduated series of rates as is common with income tax. It is often the case that some companies are charged at special rates, however. For example, governments may decide that they want to support the growth of small companies and so charge them a lower rate of corporation tax than large companies. Companies which exist only to invest in other companies, such as unit trusts for example, are often also charged corporation tax at a lower rate.

In most legal dispensations, companies are allowed to offset many costs incurred in the course of doing business against their taxable income before corporation tax is charged on it. For example, money spent on research and investment can often be written off against tax liabilities in whole or in part.

Taxes represent a transfer of wealth from the citizens of a country to the ruling power of that country. As such, they have existed since ancient times. The Bible speaks of them and it is clear from the biblical text that tax collectors were generally reviled. Almost anything can be taxed and there are various ways in which taxes can be applied.

The first taxes of which we have a documentary record were applied in ancient Egypt. In ancient times, it is clear that taxpayers were expected to offer up a portion of the agricultural produce they raised from the land to the ruling power of the day.

As economies have evolved, governments and rulers have chosen to raise taxes in different ways. For a long time, many countries raised revenue primarily through taxing imports into the country. In modern times, the income tax, which is charged as a percentage of all income earned in a period of time has become the most popular method by which governments in developed countries raise revenue. Corporation tax, a tax charged as a percentage of the profits made by incorporated companies, is also significant. Many countries also have sales taxes, or value added taxes, which are charged as a percentage of the selling price of a product or service.