Why is my profit split over two financial years?

This article explains why you might see your profit divided between two financial years in your FreeAgent Corporation Tax computation.

When the Chancellor of the Exchequer sets the rate of Corporation Tax, it’s always for a “financial year”, which runs to 31st March every year.

So if your company’s year end isn’t 31st March, part of your company’s profit is going to fall into one financial year, and part into another.

Let’s say your company’s year end is 31st December and you’re looking at your accounts to 31st December 2020.

When you look at the Corporation Tax computation in FreeAgent, you’ll see that the profit has been “apportioned” between two financial years:

That’s because the company’s profit for the 91 days between the 1st January 2020 - 31st March 2020 belongs in the financial year to 31st March 2020, which is called 'Financial Year 2019', and the 274 days between 1st April 2020 - 31st December 2020 belongs in the financial year to 31st March 2021, which is called 'Financial Year 2020'.

The profit is divided up like that, by days, no matter when the transactions actually took place. So if you paid a big bill in March 2020, that won’t all go into the amount that’s taxed at the Financial Year 2019 rate - it’s apportioned across the entire year.