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Accounting Profit vs Taxable Profit: Corporation Tax ExplainedIf you’ve ever looked at your company’s profit and loss ac...
02/09/2026

Accounting Profit vs Taxable Profit: Corporation Tax Explained

If you’ve ever looked at your company’s profit and loss account and then been surprised by the Corporation Tax bill that follows, you’re not alone. The profit in your accounts and the profit HMRC actually taxes are rarely the same figure, and understanding why is one of the most useful things a director can learn about how Corporation Tax actually works.

Want a second opinion on your Corporation Tax computation before you file? Book a free 15-minute consultation with Felix Accountants and we’ll take a look.

What Is Accounting Profit?
Accounting profit is the figure shown in your statutory accounts, prepared under standard accounting frameworks such as FRS 102 or FRS 105. It reflects your income less all costs recognised during the accounting period, including things like depreciation, which spreads the cost of an asset over its useful life for accounting purposes.

What Is Taxable Profit?
Taxable profit — more precisely, “taxable total profits” for Corporation Tax purposes — starts with your accounting profit and adjusts it according to tax law. Some costs that are perfectly valid in your accounts simply aren’t deductible for tax, and some tax reliefs don’t appear in your accounts at all. The result, after these adjustments, is the figure your Corporation Tax is actually calculated on.

Why Depreciation Gets Added Back
Depreciation is an accounting estimate of how an asset loses value over time, and estimates aren’t something tax law is willing to rely on directly. Instead, depreciation is added back in full in the tax computation, and capital allowances — a set of HMRC-defined rates and allowances — are used instead to give tax relief on qualifying capital expenditure. The Annual Investment Allowance, for example, currently allows many businesses to deduct the full cost of qualifying plant and machinery in the year of purchase, up to a set limit, with writing down allowances covering amounts above that.

Common Disallowable Expenses
Beyond depreciation, several other costs that appear in your accounts must be added back because they aren’t allowable for Corporation Tax:

Client entertainment costs
Fines and penalties, including parking tickets and HMRC penalties
Costs that don’t meet the “wholly and exclusively” test for business purposes
Certain provisions that haven’t yet crystallised into an actual liability
For a fuller list of what is and isn’t deductible for a limited company, see our guide to allowable limited company expenses.

A Worked Example
Item Amount
Profit per accounts £60,000
Add back: depreciation +£8,000
Add back: client entertaining +£1,200
Less: capital allowances -£6,500
Taxable total profits £62,700
Notice that the taxable figure here is higher than the accounting profit, even though the company hasn’t earned any additional cash — it’s purely the effect of the add-backs and reliefs working differently in the two calculations. In other cases, generous capital allowances can push taxable profit below accounting profit instead.

Why This Distinction Matters for Directors
Understanding the gap between accounting and taxable profit matters for more than just curiosity. It affects how much cash you should be setting aside for your Corporation Tax bill, and it’s also a completely separate question from how much profit is legally available to pay out as dividends, which is governed by company law and your accounting profit and reserves, not your tax computation. Paying dividends from profits that don’t actually exist can result in an illegal dividend — our guide on illegal dividends explains this risk in more detail.

Common Misunderstandings
Assuming your Corporation Tax bill should match a simple percentage of your accounting profit
Forgetting that capital expenditure isn’t deducted as it’s spent, but relieved through capital allowances instead
Treating distributable reserves and taxable profit as the same thing when deciding on dividends
Missing available reliefs, such as R&D relief, because they don’t automatically appear in the accounting figures
How Felix Accountants Can Help
We prepare Corporation Tax computations that correctly reconcile your accounting profit to your taxable profit, make sure you’re claiming every allowance and relief you’re entitled to, and help you plan cash flow around your actual tax liability rather than guesswork.

Frequently Asked Questions
Why is my Corporation Tax bill higher than expected based on my accounts?
This usually happens because disallowable expenses, like depreciation or client entertaining, have been added back in the tax computation, increasing your taxable profit above your accounting profit.

Do capital allowances always reduce my tax bill more than depreciation would?
Not necessarily in every year, but capital allowances are the only mechanism HMRC recognises for tax relief on capital expenditure, so understanding and claiming them correctly is essential regardless of how they compare to your accounting depreciation charge in any given year.

Can I pay dividends based on my accounting profit even if my taxable profit is lower?
Dividends must be paid from distributable reserves under company law, which relate to your accounting position, not your taxable profit figure. The two calculations serve different purposes and shouldn’t be confused when deciding what can legally be paid out.

Does every company need a formal tax computation separate from its accounts?
Yes. Even small companies need to prepare a Corporation Tax computation that adjusts accounting profit for tax purposes as part of the CT600 filing process, regardless of how straightforward the underlying accounts are.

What Happens If You Discover an Error in a Previous UK Tax Return?Spotting a mistake on a tax return you’ve already subm...
02/09/2026

What Happens If You Discover an Error in a Previous UK Tax Return?

Spotting a mistake on a tax return you’ve already submitted is more common than you might think — a missed expense, an omitted source of income, or a figure that simply doesn’t add up. The important thing is what you do next, because HMRC treats a self-corrected error very differently from one it uncovers itself.

Not sure whether you’re still within the amendment window, or how to approach HMRC about an older error? Book a free 15-minute consultation with Felix Accountants and we’ll help you work out the best next step.

Step One: Work Out Which Deadline Applies
How you correct the error depends on how long ago you filed the return in question.

Within 12 Months of the Filing Deadline
If you’re within 12 months of the normal Self Assessment filing deadline for that return, you can simply amend it yourself. For an online return, log back into your HMRC account, update the relevant figures, and resubmit — the system recalculates your bill automatically, showing whether you owe more or are due a refund. For example, a 2024/25 return filed by the 31 January 2026 deadline can generally be amended up to 31 January 2027.

More Than 12 Months After the Deadline
Once the 12-month window has closed, you can no longer amend the return online. Instead, you’ll need to write to HMRC explaining the correction, or make a formal overpayment relief claim if the error means you paid too much tax. Overpayment relief claims can generally be made up to four years after the end of the tax year the return relates to.

What to Include in a Written Correction or Overpayment Relief Claim
The tax year the correction relates to
A clear explanation of what was wrong and why
The amount you believe was overpaid or underpaid
Supporting evidence (invoices, statements, calculations)
A signed declaration confirming the details are correct and complete to the best of your knowledge
If the Error Means You Owe More Tax
If correcting the mistake increases your tax bill, it’s best to notify HMRC and pay the difference as soon as you’re aware of it. Interest accrues from the original due date, and coming forward yourself, before HMRC identifies the discrepancy independently, generally puts you in a much stronger position on penalties than waiting to be caught out. This is the same underlying principle behind voluntary disclosure routes like the Let Property Campaign for landlords with undeclared rental income specifically.

If the Error Means You Overpaid
If you’re due a refund, amending within the 12-month window is the most straightforward route — HMRC recalculates your position and processes the repayment. Outside that window, an overpayment relief claim achieves the same result but requires a more formal written submission with supporting evidence.

Genuine Mistakes vs Careless or Deliberate Errors
HMRC distinguishes between an honest, reasonable mistake and one caused by carelessness or deliberate action, and this distinction affects whether a penalty applies at all. If you took reasonable care and made a genuine error in good faith, you’re unlikely to face a penalty for correcting it — HMRC generally responds far more favourably to taxpayers who put things right themselves. If the error was significant, spanned several years, or involved undeclared income you knew about, professional advice is worth getting before you approach HMRC, since the correct classification affects both the penalty and how many years need correcting.

What If HMRC Corrects the Error First?
HMRC can amend a return itself within nine months of the date you filed it, typically to correct obvious errors, and will notify you of any change. If HMRC identifies a more significant discrepancy through a compliance check, the process moves from a simple correction into a formal enquiry, and the potential penalties for the same underlying mistake are usually higher than if you’d corrected it proactively.

A Practical Example
Suppose you filed your 2023/24 return in January 2025 and later realise, in mid-2026, that you forgot to include some rental income. Since more than 12 months have passed since the 31 January 2025 deadline, you can’t amend the return online — you’d need to write to HMRC, or, if the omission relates to rental income specifically, consider whether the Let Property Campaign disclosure process is the more appropriate route, since it’s specifically designed for this kind of correction.

How Felix Accountants Can Help
Whether you’re inside the 12-month amendment window or need to make a formal overpayment relief claim or voluntary disclosure, we’ll help you work out the right process, prepare accurate figures, and manage the correspondence with HMRC on your behalf.

Frequently Asked Questions
How long do I have to amend a Self Assessment tax return?
You generally have 12 months from the normal filing deadline for that tax year. For example, a return with a 31 January 2027 deadline can usually be amended up to 31 January 2028.

What is overpayment relief?
Overpayment relief is a formal claim you can make to recover tax you’ve overpaid, once the standard 12-month amendment window has passed. It must generally be made within four years of the end of the relevant tax year and requires a written submission with supporting evidence.

Will I be penalised for correcting my own mistake?
If the error was a genuine mistake made despite taking reasonable care, a penalty is unlikely. Penalties are more commonly applied where HMRC considers the error careless or deliberate, and coming forward yourself before HMRC identifies the issue generally results in a lower penalty than waiting.

Can HMRC change my tax return without telling me?
HMRC can make certain corrections within nine months of your filing date, but it will notify you of any change made. Anything beyond a simple correction, such as a discrepancy found through a compliance check, involves a more formal process where you’re kept informed and can respond.

Self Assessment for First-Time Taxpayers: How to Register and File Your First ReturnFiling a Self Assessment tax return ...
02/09/2026

Self Assessment for First-Time Taxpayers: How to Register and File Your First Return

Filing a Self Assessment tax return for the first time can feel intimidating, mostly because nobody explains the process until you’re already up against a deadline. The good news is that once you understand the sequence — register, get your reference number, then file — it’s a manageable, one-time learning curve.

If you’d rather have someone check your registration and return before you submit, book a free 15-minute consultation with Felix Accountants — it’s a quick way to make sure your first return is right.

Who Needs to Register for Self Assessment?
You generally need to register if, in the tax year in question, you had income from self-employment over £1,000, rental income, foreign income, capital gains, dividends or savings above certain thresholds, or if you need to pay the High Income Child Benefit Charge. Self Assessment isn’t limited to the self-employed — many first-time filers are landlords, company directors, or people with a side income alongside employment.

The Registration Deadline
If you need to file for the first time, you must register with HMRC by 5 October following the end of the tax year in which the income arose. For example, if you started earning untaxed income at any point between 6 April 2025 and 5 April 2026 (the 2025/26 tax year), you need to register by 5 October 2026. Miss this and you can still register late, but you risk penalties if it causes you to miss the return deadline too.

How to Register: Step by Step
Decide your category. HMRC’s registration route differs slightly depending on whether you’re self-employed, a landlord, a partner in a business, or none of the above but still need to file.
Register online with HMRC. Use the appropriate GOV.UK registration service for your circumstances and set up a Government Gateway account or sign in with GOV.UK One Login.
Receive your Unique Taxpayer Reference (UTR). HMRC posts this, usually within around 10 working days in the UK (longer if you’re abroad). You cannot file a return without it.
Activate your online account. A separate activation code arrives by post, which you’ll need to complete sign-in for the online filing service.
Set up your personal tax account. This is worth doing early — see our guide on how to set up your personal tax account for the details.
Filing Deadlines You Need to Know
Deadline What it’s for
5 October Register for Self Assessment for the tax year just ended
31 October Paper return deadline
31 January (following year) Online return deadline and balancing payment due
Our guide to the UK tax year and key dates covers how these deadlines fit into the wider tax calendar, including payments on account.

What Happens If You Miss the Deadline?
Missing the registration deadline alone doesn’t always trigger an automatic penalty, particularly if you don’t end up owing tax. Missing the filing deadline is different: HMRC applies an automatic £100 penalty even if you owe no tax, rising to daily penalties after three months. Full details are in our article on HMRC’s £100 fine for missing the tax deadline.

Common First-Time Filer Mistakes
Leaving registration until September or October and getting caught out by UTR postal delays
Not keeping records of income and expenses from day one, making the return far harder to complete accurately
Forgetting to declare all sources of income, not just the “main” one — for example, a small amount of rental income alongside employment
Assuming Self Assessment is only for the self-employed and missing the deadline as a first-time landlord
Not budgeting for payments on account, which can catch new filers by surprise in year two
Record-Keeping From the Start
Good record-keeping makes your first return far less stressful and gives you a solid foundation for every year after. Keep invoices, receipts, bank statements and any correspondence relevant to your income and expenses as you go, rather than trying to reconstruct a year’s activity in January.

How Felix Accountants Can Help
We help first-time filers register correctly, understand what they can and can’t claim, and get their first return submitted well ahead of the deadline — taking the guesswork out of a process that only gets easier the second time around.

Frequently Asked Questions
How long does it take to get a UTR number?
HMRC typically posts your Unique Taxpayer Reference within around 10 working days if you’re in the UK, or up to 21 working days if you’re abroad. It’s sensible to register well before the 5 October deadline to allow for this.

Do I need to register for Self Assessment if I’m already employed and pay tax through PAYE?
Yes, if you have additional untaxed income — such as self-employment earnings, rental income, or significant dividends — on top of your PAYE employment. Self Assessment and PAYE aren’t mutually exclusive.

What if I register late?
You can still register after 5 October, but if this causes you to also miss the filing deadline, you may face penalties. It’s best to register as soon as you realise you need to, rather than waiting.

Can I file my first return on paper instead of online?
Yes, but the paper deadline (31 October) is earlier than the online deadline (31 January), so most first-time filers find it easier to register for online filing.

Let Property Campaign Airbnb and Short-Term Rentals EligibilityLet Property Campaign Airbnb and Short-Term Rentals Eligi...
02/09/2026

Let Property Campaign Airbnb and Short-Term Rentals Eligibility

Let Property Campaign Airbnb and Short-Term Rentals Eligibility
Let Property Campaign : A modern city apartment set up for short-term guests, with a laptop showing a booking calendar on the table
Let Property Campaign : A modern city apartment set up for short-term guests, with a laptop showing a booking calendar on the table

Airbnb and other short-term letting platforms now report host income directly to HMRC, so if you’ve been treating your listing as “just a bit of extra cash” rather than taxable rental income, it’s worth checking your position carefully. A common question we hear is whether the Let Property Campaign can be used to put things right — and the answer is generally yes, but with some important nuances.

Unsure whether your Airbnb income should have been declared, or how far back you need to go? Book a free 15-minute call with Felix Accountants to talk it through confidentially.

Is Airbnb Income Taxable?
Yes. Income from letting a property, or even a spare room, on a short-term basis is taxable in the same way as any other rental income, subject to any reliefs you’re entitled to. The only exceptions are the £1,000 property allowance (if your gross rental income is below that threshold) and the Rent a Room Scheme, which lets you earn up to £7,500 tax-free from letting a room in your own home, provided you live there too.

Does the Let Property Campaign Cover Short-Term Lets?
The LPC applies to individual landlords with undeclared tax on residential property income, and this generally includes short-term and holiday-style lettings of residential property, whether booked through Airbnb, Booking.com, Vrbo or direct. What matters for eligibility is that the property is held personally, not through a limited company, and that the income is genuinely rental-style rather than a trading business involving substantial additional services such as daily cleaning, meals or reception.

If your short-term letting activity has grown into something closer to running a guest house, with significant services provided, HMRC may view it as a trade rather than a property business, which changes how it’s taxed and may take it outside the scope of the LPC. This is a grey area worth getting professional input on before you disclose.

What Changed With Furnished Holiday Lets?
Until 6 April 2025, properties meeting certain letting and availability conditions could qualify as Furnished Holiday Lets (FHLs), unlocking more generous tax treatment, including fuller mortgage interest relief and access to certain capital allowances. That regime was abolished from the 2025/26 tax year, and short-term let income is now taxed under the same rules as standard rental property income, including the mortgage interest restriction that already applied to other landlords. If you’ve been disclosing historic years, it’s important to apply the rules that were in force for each specific tax year rather than today’s rules retrospectively.

How Far Back Do You Need to Go?
As with any Let Property Campaign disclosure, the number of years you need to cover depends on your behaviour: whether the non-disclosure was a genuine, reasonable mistake, careless, or deliberate. Our guide on how many years of rental income landlords must disclose sets out the general time limits in more detail.

Accidental Hosts and First-Time Disclosures
Many people who let out a property short-term didn’t set out to become landlords in the tax sense — perhaps you started renting a spare property while working away, or began hosting guests after downsizing. If that sounds like you, our page on becoming an accidental landlord covers how HMRC treats these situations and what you need to do to get compliant.

Practical Steps If You Haven’t Declared Airbnb Income
Pull together booking records, payout statements and platform tax summaries for each relevant tax year
Work out which years the Furnished Holiday Let rules did or didn’t apply, since this affects your allowable deductions
Check whether the Rent a Room Scheme or property allowance already covers part of your income
Consider whether your behaviour is likely to be classed as careless or deliberate, since this affects the penalty rate and the years you must disclose
Make your disclosure before HMRC contacts you, to secure unprompted disclosure treatment and a lower penalty
Common Mistakes Hosts Make
The most frequent error we see is hosts assuming that because Airbnb “already takes its cut” or issues a summary, the income has somehow already been reported to HMRC on their behalf. It hasn’t — platform reporting to HMRC is a compliance tool for HMRC, not a substitute for your own Self Assessment return. Another common mistake is applying FHL-style deductions to years after the regime ended, which can trigger its own correction later.

How Felix Accountants Can Help
We regularly help hosts and landlords work out exactly what’s owed across multiple tax years, apply the correct rules for each year, and submit an accurate Let Property Campaign disclosure that stands up to HMRC scrutiny.

Frequently Asked Questions
Do I need to declare Airbnb income if I only host occasionally?
If your gross rental income from all sources is under £1,000 in a tax year, the property allowance may mean you don’t need to declare it. Above that, it generally needs to be reported, even if hosting is occasional.

Can I still get Furnished Holiday Let tax treatment for a current listing?
No. The Furnished Holiday Let regime was abolished from 6 April 2025, so short-term let income from the 2025/26 tax year onward is taxed under the standard property income rules.

Does the Let Property Campaign cover overseas short-term lets?
It can, in certain circumstances, though overseas income brings in additional considerations such as double taxation relief. It’s best to get specific advice if your undeclared income relates to a property outside the UK.

What if my short-term letting is really more like running a guest house?
If you provide substantial additional services, HMRC may treat the activity as a trade rather than a property business, which can affect both how it’s taxed and whether the Let Property Campaign is the right disclosure route.

Let Property Campaign vs HMRC Tax InvestigationIf you’ve fallen behind on declaring rental income, you’ve probably come ...
02/09/2026

Let Property Campaign vs HMRC Tax Investigation

If you’ve fallen behind on declaring rental income, you’ve probably come across two very different-sounding terms: the Let Property Campaign and an HMRC tax investigation. They can lead to the same place — you paying the tax you owe — but the route, the paperwork, and crucially the penalties can be worlds apart depending on which one applies to your situation.

Not sure which route applies to you, or whether you should come forward before HMRC contacts you? Book a free 15-minute consultation with Felix Accountants and we’ll talk through your specific circumstances, in confidence, with no obligation.

What Is the HMRC Let Property Campaign?
The Let Property Campaign (LPC) is a voluntary disclosure facility that HMRC has run since 2013. It allows individual UK landlords with undeclared or under-declared rental income to come forward, calculate what they owe, and pay it — usually on more favourable terms than if HMRC discovered the problem itself. It applies to residential property income only; landlords holding property through a limited company or trust cannot use the LPC.

Once you notify HMRC of your intention to disclose, you’re generally given 90 days to work out the tax, interest and any penalty due and submit your disclosure. It’s a structured, self-managed process, and it is entirely optional — nobody forces you into the LPC.

What Is an HMRC Tax Investigation?
A tax investigation, by contrast, is something HMRC initiates. It isn’t voluntary, and once it starts, you lose control over the pace and shape of the process. There are two versions worth understanding.

Formal Compliance Checks and Enquiries
These are opened when HMRC has reason to believe a return is wrong — often triggered by data mismatches from sources like the Land Registry, letting agents, mortgage lenders or short-term letting platforms. HMRC will typically request records, ask questions, and can go back several years depending on the behaviour involved.

Code of Practice 9 (COP9)
Code of Practice 9 is reserved for cases where HMRC suspects deliberate tax fraud. It’s a civil process, offered as an alternative to criminal prosecution, but it requires you to sign a formal contract admitting to any deliberate wrongdoing and disclose everything in full. It carries much higher stakes than either the LPC or a standard compliance check, and professional representation is essential from the outset.

Key Differences at a Glance
FactorLet Property CampaignHMRC Tax InvestigationWho starts itYou, voluntarilyHMRCTypical penalty range (careless error)0% to 30% (often much lower when unprompted)15% to 30% or higher, since the disclosure counts as promptedWho controls the paceYou, within the 90-day windowHMRCPublic “naming and shaming” riskVery low, if full and accuratePossible for serious, deliberate casesAvailable for companies/trustsNoYes

Why Timing Matters: Prompted vs Unprompted Disclosure
This is the single biggest factor in how much you’ll ultimately pay. Under HMRC’s penalty rules, an unprompted disclosure — one made before HMRC has any reason to believe it’s about to find the error — attracts a far lower penalty than a prompted disclosure made after contact from HMRC. For a careless error, an unprompted disclosure can start at 0%, while a prompted one is very rarely below 15%. Once HMRC has sent you a nudge letter or opened an enquiry, that lower band is gone for good, no matter how cooperative you are afterwards.

Which Route Applies to You?
In practice, most landlords who haven’t yet heard from HMRC are free to use the LPC on an unprompted basis. If you’ve already received a nudge letter, you can generally still use the LPC, but your disclosure will be treated as prompted, meaning a higher minimum penalty. If HMRC has gone further and opened a formal enquiry — or suspects deliberate concealment — the LPC route is usually closed to you, and you’ll be dealing with a standard compliance check or, in serious cases, COP9.

Working out exactly how many years of rental income need to be disclosed also depends on which category your behaviour falls into — careless errors generally require fewer years back than deliberate non-disclosure.

What Happens If You Do Nothing?
Doing nothing is the one option that reliably makes things worse. HMRC’s Connect system cross-references data from letting agents, banks, mortgage applications and property platforms, so undeclared rental income is increasingly likely to surface on its own. If it does, you lose the ability to make an unprompted disclosure entirely, and any subsequent enquiry starts from a position where HMRC is already suspicious.

Common Mistakes Landlords Make
Waiting to see if HMRC “actually finds out” rather than disclosing proactively

Assuming the LPC applies to a property held in a limited company (it doesn’t)

Submitting a partial disclosure and leaving out a property or income stream, which HMRC can treat as deliberate concealment if later discovered

Trying to negotiate a COP9 case without professional representation

How Felix Accountants Can Help
Whether you’re weighing up an unprompted LPC disclosure, responding to a nudge letter, or facing a formal enquiry, getting the behaviour classification right from the outset has a direct impact on your final bill. We handle the calculations, the correspondence with HMRC, and the disclosure itself, so you’re not navigating it alone.

Frequently Asked Questions
Can HMRC open an investigation while I’m in the middle of an LPC disclosure?
Generally, if your LPC disclosure is accurate, complete and submitted in good faith, HMRC treats it as a self-contained process and won’t open a parallel enquiry into the same rental income. However, HMRC does reserve the right to investigate further if the disclosure appears incomplete or inconsistent with information it already holds.

Does the Let Property Campaign apply to companies?
No. The LPC is only available to individual landlords with undeclared income from residential property. Landlords who hold property through a limited company need to correct their position through Corporation Tax filings instead.

What if I’ve already received a nudge letter?
You can usually still use the Let Property Campaign, but your disclosure will be classed as prompted, which generally means a higher minimum penalty than if you’d come forward first. It’s still typically far better than waiting for a formal enquiry to open.

Will using the Let Property Campaign guarantee I avoid prosecution?
The LPC does not offer a formal, legally guaranteed immunity from prosecution in the way that Code of Practice 9 does. In practice, criminal prosecution of landlords who make a full, honest disclosure is rare, because HMRC’s primary objective is recovering the tax owed rather than pursuing individuals through the courts.

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