2nd year corporation tax return (CT600): problems tallying

[kyleduncan]

Hi,

I am just completing my second CT600 return for my Limited Company. I'm running into a problem getting the balance sheet to tally. The problem is as follows:

1. First, I went through the Accounts and filled out all of the information and values correctly for the current accounting period (turnover/expenses/dividends/cash at bank/debtors/creditors/called up share capital)

2. Next, i went through and copied in all of the details from last year's return into the boxes for the previous period

3. In boxes AC74/75 for the cumulative profit/loss account, I put last year's profit/loss into box AC75 for the previous period: £7,281, then I put the cumulative total into box AC74 (7,281 from the last period, plus 2,088 from this period): £9,369.

4. Immediately, the current period's accounts don't tally (my total net assets are £2,868, not £9,369). This is because the profit/loss from the previous period is actually NOT £7,281 (as it was calculated on my company's first ever return) because that return itself generated a £6,502 CT bill. So in truth, to get the balance sheet for the current period to tally, I should be somehow entering the value of last year's Corporation Tax bill in a box to reduce last year's profit/loss account (£7,281) by £6,502 so that it reads £779, which, when added to the current period's profit/loss account of £2,088, comes nicely to £2,867 - plus £1 for called up share capital: £2,868 - and the balance sheet tallies). But I am not sure where to put last year's CT tax, and it seems odd to enter values in boxes for the previous period that change the previous period's calculations, when these were submitted months ago.

I wondered whether the correct thing to do is to enter last year's CT bill of £6,502 into box AC35 ("tax on profit or (loss) on ordinary activities") for the previous period, changing my previous period's profit/loss account to £779. But when I do this, I'm also suddenly required to enter an extra £6,502 into box AC59 ("Creditors: amount falling due within one year") for my previous period, to bring the previous period's total net assets down to £780, so that the previous period's balance sheet also tallies (£779 plus £1 called up share capital). The only explanations i can think of are:

a) I filled out last year's return incorrectly, because back then I should have actually backtracked on the CT600 form and entered the £6,502 CT bill into the relevant boxes AT THE TIME, as soon as that value had been generated by the form. Perhaps I was supposed to put the £6,502 into boxes AC34 (tax on profit) and AC58 (creditors: amount falling due) once I knew the value, so my profit/loss account and net assets for my company's first year were actually shown as the values left AFTER the CT bill had been deduced (£780: £779 plus £1 called up share capital).

b) I'm missing something about my current, second, CT600 return, and am simply unaware about how to cater for this £779 discrepancy, which was the company's retained profits at the end of the first year after £6,502 CT has been deducted.

Finally, once I get through to the Statutory Accounts section of the return, which is all filled in automatically at this point (except for the previous period's opening balance, which was £0 as it was the first year of business) everything does show correctly (in terms of retained profits at the end of the first period, and reserves available at the start of the second period - both £779), but i'm still not sure i am putting the CT value of £6,502 into the correct boxes for the previous period. It just feels very wrong to be changing the profit/loss account and total net assets for the previous period to account for the previous period's CT bill, when those values were used to create the CT bill in the first place. Going round in circles!

Can anybody help?

Thanks in advance!

Kyle

[RAL]

Kyle

Have you prepared the accounts and CT computation? If not, then it may be difficult to fill those boxes.

[kyleduncan]

Hi,

Yes, that's all been done, and I have all the necessary values and breakdowns. I'm just not clear on how to deal with the £779 retained profits that were left at the beginning of my company's 2nd accounting period after the £6,502 CT bill from the first period's profits.

[RAL]

I think it would be difficult to answer your queries. without actually looking at the trial balance.

Para (4) You made a profit before tax was £7,281 and you paid the CT of £6,502. Is this correct? What was the taxable adjusted profit chargeable to corporation tax? (i.e. after adjusting for depreciation and capital allowances).

Apart from above, your suggestion seems to make sense and work however. Retained profit is after tax and dividend everything. If your previous years figures are correct than, £779 is correct figure. But is CT amount correct? Did you pay previous years CT amount of £6,502 to HMRC?

[kyleduncan]

Hi,

Thanks for your help. I didn't have any tangible assets and no capital allowances/depreciation. So £7,281 was the correct amount chargeable to CT.

And yes, the CT amount is correct and paid out. So with my return as it currently stands, I will owe £2,328 CT on this current period. Do I need to enter that value this year on this return, or leave it until 31st March 2012 (end of third period) and then mark that down in the "Previous period's" boxes as I'm doing now?

I'm still not clear on whether each return's "total net assets after liabilities" should include that period's CT due (via the "creditors" box) even though that calculation isn't performed until later in the CT600 form.

I think the simplest answer I need is: where do I adjust for retained profits (£779) at the end of the previous accounting period? without knowing how to cater for this in the profit/loss section and the balance section, i won't be able to get my accounts to tally each year i file a return, unless I make sure retained profits are exactly 0 every year by way of a dividend payment on 31st March each year.

Thanks

[RAL]

Hi,

Thanks for your help. I didn't have any tangible assets and no capital allowances/depreciation. So £7,281 was the correct amount chargeable to CT.

Get someone to check your calculation ASAP as even full CT rate of 28% on £7,281 is £2,038.68 an at 21% is £1529.01.

And yes, the CT amount is correct and paid out. So with my return as it currently stands, I will owe £2,328 CT on this current period. Do I need to enter that value this year on this return, or leave it until 31st March 2012 (end of third period) and then mark that down in the "Previous period's" boxes as I'm doing now?

This should be included in the same accounting period. For example if this amount is due for accounting period ending 31/03/2011 then it should include in that accounts as a liability.

I'm still not clear on whether each return's "total net assets after liabilities" should include that period's CT due (via the "creditors" box) even though that calculation isn't performed until later in the CT600 form.

It is kind of chicken and egg situation. First you need to prepare the account and calculate profit after interest and everything but before the tax. Use this profit figure to calculate the tax then include the tax in the accounts. You should include in two places, one in profit and loss accounts deduct from the profit and show as a liability in balance sheet under creditor less than 1 year.

I think the simplest answer I need is: where do I adjust for retained profits (£779) at the end of the previous accounting period? without knowing how to cater for this in the profit/loss section and the balance section, i won't be able to get my accounts to tally each year i file a return, unless I make sure retained profits are exactly 0 every year by way of a dividend payment on 31st March each year.

Thanks

I think either you need to engage an accountant or get a good books on preparing the company accounts etc. As I said retained profit is calculated after deducting everything.

£779 would be retained profit for the previous year. For this year, £779 + current years profit (after deducting all the expenses and CT tax) = retained profit carry forward to next year.

[kyleduncan]

Thanks,

Sorry, i gave you the wrong figure. £7,281 was the previous year's adjusted profit transferred to reserves (after dividends taken off). the taxable profit was £30,960 @ 21% = £6501.60.

Your other points are really helpful, thanks. So yes, chicken and egg indeed! I'm clear now that each year I need to mark the corporation tax I'm about to pay within the accounts section for that period.

This seems to work and will work for future returns too.