I am preparing my company's annual account for the current year ending April/2016. How do I take into account the amount of corporation tax that I paid to HMRC for the previous year that company made profit for the first year of trading. I have looked at the list of allowed expences on the HRMC website and the corporation tax charge is not listed. How do I balance the book if I paid £515.00 out of my account to HRMC this year for the corporation tax on my previous year profit? I am realy confused.
Corporation tax is not an expense in your P&L, it is a creditor in the balance sheet, so when you make the payment you reduce the creditor account. Ive not added how to key it as I am unsure what software you are using.
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Joanne
Winner of Bookkeeper of the Year 2015, 2016 & 2017
Thoughts are my own/not to be regarded as official advice,which should be sought from a suitably qualified Accountant.
You should check out answers with reference to the legal position
Hi Sass
When you prepared your accounts last year, you should have included an adjustment to account for the tax charge relating to that period - effectively accruing it. You debit the profit and loss account and credit the balance sheet.
If you didn't do this, you'll have to double up this year. Post your bank payment to taxation and do your current year adjustment too.
Whilst corporation tax is an expense/cost/outgoing/whatever you want to call it, to the business, you don't get tax relief on your tax liability. So you won't see it listed in the kinds of expenses that websites normally talk about. They tend to look at what is allowable for tax relief. Or, what to show as cost of sales and what to show as admin etc. The taxation charge goes on the profit and loss on its own line. It's not part of admin expenses/overheads.
Here's a link to a layout:
http://www.tutor2u.net/business/reference/the-profit-and-loss-account
(You'll need to scroll down a bit)
This is a very simple layout but hopefully it'll help you get you head round it some!
