Corporation Tax Explained: Code 2110

Unlike VAT, which is collected on behalf of HMRC throughout the year, Corporation Tax is charged on the company's own profits and typically settled once a year — but the liability needs to be recognised as soon as it's estimated, not just when it's paid.

What this code holds

Code 2110 — Corporation Tax records the amount owed to HMRC on the company's taxable profits for the period. It's a Current Liabilities code and normally carries a credit balance: the annual tax charge increases it, and payment to HMRC decreases it. The matching expense is usually posted through code 9001 (Taxation) in the profit and loss account.

Real-world examples

Corporation Tax works the same way regardless of what a company actually does — a bakery, a software house and a haulage firm with identical taxable profits pay an identical bill. What genuinely changes the figure is the level of profit itself, since the rate isn't flat.

Small company below the lower threshold

A small trading company with taxable profits of £40,000 — below the £50,000 small profits threshold — pays at the 19% small profits rate: £7,600. At year end, that's a debit of £7,600 to 9001 (Taxation) in the profit and loss account and a credit of £7,600 to 2110 (Corporation Tax). When it's paid nine months later, a debit of £7,600 to 2110 clears the liability, matched by a credit of £7,600 to 1200 (Bank Current Account).

Company in the marginal relief band

A company with profits of £150,000 — between the £50,000 and £250,000 thresholds — doesn't pay a flat rate at all. Tax at the full 25% rate would be £37,500, but marginal relief reduces that by £1,500 (the £100,000 gap to the upper threshold, multiplied by the standard 3/200 fraction), giving a net charge of £36,000 — an effective rate of 24%. The entry is the same shape: a debit of £36,000 to 9001 and a credit of £36,000 to 2110.

Larger company above the upper threshold

A larger company with profits of £550,000 pays the full 25% main rate with no relief: £137,500. Same mechanics again, just at a bigger scale — a debit of £137,500 to 9001 and a credit of £137,500 to 2110. A group with several subsidiaries divides the thresholds between the related companies, so which band an individual company falls into can depend on group structure as much as its own standalone profit.

Why this matters day to day

Recognising the tax charge at year end, rather than only when it's paid months later, means the accounts show the true cost of the year's trading and the balance sheet reflects a real liability that exists on the last day of the accounting period. It's also one of the first figures HMRC and any lender or investor will check the accounts tie back to.