How to account for corporation tax refund paid automatically by HMRC

[sy8111]

Hi, after the accounted financial period, I received a payment of tax refund from HMRC, just about £10.00. How do I account for it? And related question is how do I account for normal CT ?

For normal CT, what I do is:

1. At end of financial year, I add Credit to CT Payable, add Debit to Retained Earnings (better account?)
2. When made payment, add Debit to CT Payable, add debit to Cash.

[Scruff]

To make the provision for CT:
DR Taxation Payable (expense)

CR Provision for Corporation Tax

To account for payment of CT:
DR Provision for Corporation Tax

CR Bank Account

[sy8111]

To make the provision for CT:
DR Taxation Payable (expense)

CR Provision for Corporation Tax

To account for payment of CT:
DR Provision for Corporation Tax

CR Bank Account

Shouldn't Taxation Payable account be Liability type? Also, what is type of Provision for CT? I understand it should be a non-taxable expense or equity? I am asking because no provision for CT account in my accounting system.

[Scruff]

Shouldn't Taxation Payable account be Liability type? Also, what is type of Provision for CT? I understand it should be a non-taxable expense or equity? I am asking because no provision for CT account in my accounting system.

Taxation Payable is the expense side - non-taxable is moot, since it is, by definition, calculated after expenses have been deducted from income.
Provision for Taxation is the liability side.

If a refund is received, then the cashbook entry is
Dr - Bank
Cr - Provision for Taxation

[Contreras]

Hi, after the accounted financial period, I received a payment of tax refund from HMRC, just about £10.00. How do I account for it?

To be clear, is it a refund for CT overpaid or is it interest on CT paid early?

The later I believe should be treated as revenue and itself subject to CT for year in which it is received.

Coincidentally I have just had one of these (interest repayment) for the first time, so I'm left wondering about previous years where CT was also paid early. Perhaps there is a lower limit below which HMRC will not bother to pay interest... I'm not bothered as we're talking very small amounts, but curious nonetheless.

[sy8111]

Taxation Payable is the expense side - non-taxable is moot, since it is, by definition, calculated after expenses have been deducted from income.
Provision for Taxation is the liability side.

If a refund is received, then the cashbook entry is
Dr - Bank
Cr - Provision for Taxation

Thanks a lot.

A further question: when normally do we book CT liability, on end date of the particular FY or any date in future before CT report to HMRC? If latter, we should be careful to exclude Taxation Payable from next FY P/L calculation, right?

[sy8111]

To be clear, is it a refund for CT overpaid or is it interest on CT paid early?

The later I believe should be treated as revenue and itself subject to CT for year in which it is received.

Coincidentally I have just had one of these (interest repayment) for the first time, so I'm left wondering about previous years where CT was also paid early. Perhaps there is a lower limit below which HMRC will not bother to pay interest... I'm not bothered as we're talking very small amounts, but curious nonetheless.

I think mine is overpaid amount. But I agree with your interest theory.

[Scruff]

Thanks a lot.

A further question: when normally do we book CT liability, on end date of the particular FY or any date in future before CT report to HMRC? If latter, we should be careful to exclude Taxation Payable from next FY P/L calculation, right?

CT Liability is calculated using the Financial Year end Income Statement (and Balance Sheet). The Company Tax return is completed using these figures.

If, subsequent to the preparation of your Financial Statement & prior to submission of the Company Tax return, that you have discovered a material change to your Corporation Tax liability, you can then withdraw and amend the Financial Statements, or, if not material, just account for them in the following period.

[blinko]

as mentioned above, if it is funds being returned due to Corp tax overpayment, this will dr bank and cr Tax account. (reversing the original entry)

If it is interest received due to early payment this is classed as non trading income.

Dr tax account and credit non trading income

[Greg@CapitalCity]

Coincidentally I have just had one of these (interest repayment) for the first time, so I'm left wondering about previous years where CT was also paid early. Perhaps there is a lower limit below which HMRC will not bother to pay interest... I'm not bothered as we're talking very small amounts, but curious nonetheless.

On the CT600 you can request the HMRC not bother refunding anything under £20, maybe they have done that in the past, and this year your refund was greater than £20?? If you do have unpaid interest from previous years it will accumulate in your Corp Tax account with the HMRC. If you have online access you will be able to check this out - if not, give them a call and see if you have a fat juicy credit sitting there, that you can use to offset next years CT payment.