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.

A worked example

Say a company's accountant calculates a Corporation Tax charge of £19,000 on the year's taxable profits, due for payment nine months after the year end.

At year end: £19,000 credited to Corporation Tax (code 2110), with a matching £19,000 debit to Taxation (code 9001) in the profit and loss account.

At payment: £19,000 debited to code 2110, clearing the liability, and the bank account is credited the same amount.

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.