Corporation Tax

[knec]

Sorry for what may seem like a basic question but I just wonder what the correct amount of Corporation Tax should be paid in the following scenario?

A Company's financial year runs from October to September and during that year (April) the corp tax rate changes from 19% to 20%. For arguements sake, let's say you only work/trade in October and have a taxable profit within that month of £100k. Should the amount of corp tax paid only be 19% i.e £19k, since that was the rate when that profit was made? Or should the profit be apportioned across the number of days within the financial year at 19% and the number of days at 20% e.g. half of financial year was based on 19% therefore taxed 19% of £50k and the other half of the year at 20% of £50k.

Apologies for the long winded explanation.

[chris79]

I'm pretty sure there's a formula you need to use on HMRC's website, it works out the number of days then apportions it, and you end up with a calculated value like 19.xxx% or so.. but I'm no accountant. I've definitely seen this somewhere on their website though.

[Zen Contracting]

Its the latter. The total profit for the year (even if it was all made on the first day of the year) is apportioned on a daily basis. The tax is then calculated on a daily basis also so in your example you'd pay x days at 19% and y days at 20%.

HMRC have a useful calculator to help you which can be found at http://mrrcalculator.hmrc.gov.uk/MRR0.aspx

Regards.

David.

[Gonzo]

I am no accountant either, but without digging my accountant's last lot of calculations out because I can't be bothered, I think that the total profit for the company year gets apportioned in the same ratio to the number of days in that year at the two tax rates applied.

[chris79]

http://www.hmrc.gov.uk/ctsa/mrr_worksheet.htm

[ASB]

Sorry for what may seem like a basic question but I just wonder what the correct amount of Corporation Tax should be paid in the following scenario?

A Company's financial year runs from October to September and during that year (April) the corp tax rate changes from 19% to 20%. For arguements sake, let's say you only work/trade in October and have a taxable profit within that month of £100k. Should the amount of corp tax paid only be 19% i.e £19k, since that was the rate when that profit was made? Or should the profit be apportioned across the number of days within the financial year at 19% and the number of days at 20% e.g. half of financial year was based on 19% therefore taxed 19% of £50k and the other half of the year at 20% of £50k.

Apologies for the long winded explanation.

As an aside why not adjust your year end to lengthen the next accounting period to 31/03/xx ? You have to give notification of this before the end of the year you are extending and there is a form on th companies house website.

You may have reasons for having your corporate year straddling the tax year (I seem to remember there was a tactical advantage to this when ACT still existed).

[knec]

Sorry for the delay but thanks for the responses to this.

Just as a further query, I believe you're supposed to do accounts when you want to pay a dividend, to show that there are the necessary available funds in the business at that time (as presumably it is illegal to pay yourself more dividends than the money owed from the business).

In this scenario, you want to pay yourself a dividend on 1st April. You'll draw up accounts up to that date (is it correct to do up to 1st April rather than end of financial year) to see how much you can take. In the above scenario I'd be able to take out £81k in dividends (rate of 19% up to that point). Having not worked again before the end of the financial year, when it comes to calculating the tax due at year end, it'll turn out that I wouldn't have enough money since part of the profits will be taxed at 19% and some at 20% and hence leave you in trouble with HMRC when in theory you did the right thing.

I know it's unlikely people sail that close to the wind and literally leave no money in the business at all but basically when preparing interim accounts do you have to work out your tax apportioned across the whole year (regardless of where you are in the financial year) so as to eliminate this kind of discrepancy?

Many thanks again for your time.