What is the first step in calculating corporate tax?

The initial step in calculating corporate tax involves adjusting accounting profit for tax purposes. This adjustment is crucial because the accounting profit reported in financial statements does not necessarily reflect the taxable profit that will be assessed for tax obligations.

Tax adjustments may include adding back non-deductible expenses, such as fines or certain entertainment costs, and subtracting allowable deductions such as capital allowances or tax reliefs. This means that the taxable profit may differ significantly from the accounting profit due to the specific rules and regulations governing corporate taxation.

Calculating total revenue, identifying business expenses, and determining the corporate tax rate are subsequent steps that follow the adjustment to accounting profit. Total revenue and business expenses form part of the initial calculation but must be adjusted to arrive at the correct taxable figure before applying the tax rate to determine the tax liability. Thus, ensuring that accounting profit has been correctly adjusted is the foundational step in the overall process of calculating corporate tax.