To Solar

After looking through previous forum posts, I still need to ask a couple of qiestions.

1. Corporation Tax. Do you have to enter the start figure manually? And then update manually? Looking at the screen shots, it seems you have to do a transaction from the Corp account to the tax expense account. If you have a zero figure in Corp tax to start then I presume this would create a zero figure.

If you do have to enter a manual start figure and you do the transaction to the tax account, will this zero the Corp amount and pass it over to the tax expense or will it leave the same figure in both accounts?

I say that as the next step is to do a money out. From the screen shots it shows you use the corp liability account. Now if you have transferred the amount from the Corp to tax in the first step would this not create a negative value.

2. Retained earnings. When you do a year end procedure, previous forum posts say the net profit from year 1, would be transferred into the retained earnings for year 2. Would this zero the net profit for year 1?

Sorry for the long winded msg.

Many thanks

Tom Coates
TMC

Hi Tom,

1. Yes, you will probably need to enter the opening balance for the Corporation Tax Liability account, then update this figure periodically. The starting balance for corporation tax has no bearing on how much tax you record during the financial year.

Let's take an example: Say your financial year begins on 1 January 2010, but you owe £4,000 in corporation tax from 2009. You would set the opening balance of the Corporation Tax Liability account to £4,000.

a) In January you make a profit before tax of £500, and you calculate that you will eventually need to pay £100 corporation tax. You therefore record a General Transaction dated 31 January 2010 from the Corporation Tax Liability account to the Tax Expense account for £100. This transaction will increase the tax liability to £4,100.

b) In February the gross profit is the same, so you record another tax expense of £100 - this will increase the tax liability to £4,200.

c) On March 15 you pay £4,000 corporation tax to HMRC - recording this Money Paid Out transaction will reduce the Corporation Tax Liability balance to £200. At the end of March you record another tax expense for £100, increasing the corporation tax liability balance to £300.

So in summary: recording a tax expense increases both the Corporation Tax Liability and Tax Expense balances. Recording a tax payment to HMRC decreases both the Corporation Tax Liability and Cheque Account balances.

2. No, Solar Accounts will ignore the end-of-year transaction when it calculates the profit in the Profit and Loss report.

Regards,

Hi

Remember though that corporation tax calculations are not straight forward and require various other calculations to be taken into account. Some of which include depreciation, capital allowances, paye, etc.

In other words you will need to make an adjustment at the end of year when the corporation tax calculation has been made. Most people get their accountant to do it as it can be tricky. It is possible to do it yourself, but be careful. It may cost you more in fines if you get it wrong than the money you save on a professional doing it.

Joe