Suppose company paid £5,000 corporation tax.
When calculating the corporation tax for the following financial year, do I need to deduct £5,000 from the company's profit?
Corporation tax payment and company's profit
5 posts • Page 1 of 1
by Lambs on Thu Jan 12, 2006 12:50 pm
V,
It is Generally Accepted Accounting Practice to attempt to recognise liabilities, basically 'as soon as reasonably possible,' such that you should be making a provision in the year itself, for the corporation tax that will be payable, rather than adjusting for it in the following year.
This would basically be an accrual, but note that it is worked out after the "Profit Before Tax" line in the P & L account, and is NOT itself an allowable deduction when working out how much Corporation Tax is due. (Interest on Corporation Tax is, however, under the Loan Relationship rules).
i.e. you make provision for it now, rather than later, but you cannot deduct it from your profits when calculating your tax bill, (or later tax bills), even if you do actually deduct it from profits in the financial statements themselves.
Regards,
Lambs
It is Generally Accepted Accounting Practice to attempt to recognise liabilities, basically 'as soon as reasonably possible,' such that you should be making a provision in the year itself, for the corporation tax that will be payable, rather than adjusting for it in the following year.
This would basically be an accrual, but note that it is worked out after the "Profit Before Tax" line in the P & L account, and is NOT itself an allowable deduction when working out how much Corporation Tax is due. (Interest on Corporation Tax is, however, under the Loan Relationship rules).
i.e. you make provision for it now, rather than later, but you cannot deduct it from your profits when calculating your tax bill, (or later tax bills), even if you do actually deduct it from profits in the financial statements themselves.
Regards,
Lambs
- Lambs
- Posts: 846
- Joined: Wed Aug 06, 2008 3:15 pm
by deanshepherd on Fri Jan 13, 2006 1:17 am
In answer to your question, no.
Example:
Profit before tax - £25k
Tax on profits - £5k
Profit after tax - £20k
Lambs is saying that the tax payable is shown further down the P&L and does not affect the profits on which tax is calculated.
He is also saying that the current years tax will be shown as a creditor in hte accounts so will not even hit the P&L in the following year.
Dean Shepherd
dean.shepherd@mmi-online.co.uk
MMI Accountancy
www.mmi-online.co.uk
Example:
Profit before tax - £25k
Tax on profits - £5k
Profit after tax - £20k
Lambs is saying that the tax payable is shown further down the P&L and does not affect the profits on which tax is calculated.
He is also saying that the current years tax will be shown as a creditor in hte accounts so will not even hit the P&L in the following year.
Dean Shepherd
dean.shepherd@mmi-online.co.uk
MMI Accountancy
www.mmi-online.co.uk
- deanshepherd
- Posts: 1082
- Joined: Wed Aug 06, 2008 3:23 pm
5 posts • Page 1 of 1
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