Explaining corporation tax payment

Question asked by Gregory Sanderson 7 years ago

Hello,

I have been explaining payments on the bank statement, and explained the corporation tax payment as a payment to a supplier I added called HMRC, under the listed Corporation Tax account.

I thought this was correct, but I have a couple of questions:

1) I came across this post, which says that you should first create a journal for the corporation tax and then explain it.

https://www.clearbooks.co.uk/support/guides/corporation-tax/new-navigation-record-corporation-tax/

I'm not clear about the purpose of that journal ... should I have done that first? So should I delete the payment, create the journal, and then explain it again?

2) As regards the second part of that guide - explaining the payment to the Corporation Tax listed in the dropdown menu - I did that as above, however I have since spotted that in the account codes Corporation Tax is actually listed twice. But only one of the 'Show in purchases' boxes is ticked, so presumably that is the one I explained it against.

Which is the correct one to use?

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4 Replies

Hi Gregory - the guide is correct however, as mentioned at the bottom of the guide, I'd never bother with the bill creation bit (steps 3 & 4) as it sticks the Corporation tax liability in "Trade creditors" which it isn't.

So:

A. put through the journal at the year end taking the tax out of the correct year's profits (using 6501001) and putting the liability to the creditor account (8503002).

B. when you come to pay the liability 9 months after the year end just put the payment to the creditor account to show that the liability is paid off (as per guide, you need to tick the second account "show" box).

Best answer
7 years ago

Hi,

Ok, thank you.

So I went back and created a journal as described, settings its date as the last day of the previous financial year (first image).

I then explained the payment on the statement by picking the highlighted account (newly added by ticking that box).

(the red cross being the one I previously used - the one that seemed the more logical, explaining it as a tax expense)

So hopefully that is all correct now.

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7 years ago

Looks good

Had you used the first P&L account this would have doubled up the tax charge coming out of profits, ie £X last financial year (with the journal) and £X this financial year, with the payment.

"Parking" sums of money in the balance sheet accounts to be dealt with next year, is a fundamental of accounting, and is in fact a requirement for Ltd Companies.

This is automated to a great extent on the income side by creating an invoice in CB, in that the income is recorded in the books on the date of the invoice, regardless of when the money arrives. The debt is therefore "parked" in the Trade debtors account, waiting for the money to pay it off, when you set it against the unpaid invoice.

This should also be done with significant sums you buy on credit, ie create a bill (in Purchases) from the supplier bill which parks the debt in trade creditors waiting for the money to be set off against the unpaid bill.

Finally, sometimes you will get a bill in the first month of the new year, relating to costs of the previous month, or even bills in the last month of the year relating to costs of next year. If significant these too need adjusting for, by way of journal entry.

7 years ago

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