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A guide to Corporation Tax in FreeAgent

This article explains how FreeAgent’s Corporation Tax functionality works.

If your business is a limited company, FreeAgent calculates your Corporation Tax liability based on the data you enter throughout the year. If you’re a sole trader or you have any other type of business you won’t see any of the functionality described in this article as you don’t have to pay Corporation Tax.

You can file your Corporation Tax return to HMRC through FreeAgent after you've filed Final Accounts to Companies House in FreeAgent.

Please note that at the moment, there are certain Corporation Tax scenarios which are unsupported in FreeAgent.

Setting your accounting dates

In order for FreeAgent to calculate your company’s Corporation Tax liability accurately, your accounting dates need to be recorded correctly.

To review your accounting dates in FreeAgent, choose ‘Settings’ from the drop-down menu in the top-right hand corner and choose ‘Accounting Dates’.

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If your company started trading on a day after its incorporation date, you will need to enter that date in the ‘Company Trading Start Date’ field. If your company started trading on its incorporation date you can leave this field blank.

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The date that you enter in the ‘Company Trading Start Date’ field will trigger a new Corporation Tax accounting period in accordance with HMRC’s rules.

If you’re not sure what this means or you’re unsure what your company trading start date should be, please speak to your accountant.

The Corporation Tax area of your FreeAgent account

Navigate to the Corporation Tax area of your FreeAgent account by selecting ‘Corporation Tax’ from the ‘Taxes’ drop-down menu.

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Once in the ‘Corporation Tax Return’ area, you’ll be presented with a list of the Corporation Tax records for your company from each accounting year.

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To access FreeAgent’s Corporation Tax computations for a particular accounting year, select the appropriate year from the list.

Your Corporation Tax computations in FreeAgent

FreeAgent splits its Corporation Tax computations into these areas:

  • Capital allowances
  • Taxable profit
  • Apportionment of profit
  • Tax disallowable expense
  • Non-trading income

Your CT600 form

You can view your automatically-generated CT600 form by selecting the ‘CT600’ tab from the ‘Corporation Tax Return’ section. If you’re unable to file your CT600 form using FreeAgent, you can use the information in the CT600 form to submit your Corporation Tax return to HMRC outside of FreeAgent. We strongly recommend that you work with an accountant to do this.

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Please note that the ability to file Corporation Tax is only available for accounting years ending on or after 27th October 2020. If your accounting period ends before this date, FreeAgent will work out a Corporation Tax projection for your company but won’t produce a CT600 form for you to file. 

Corporation Tax scenarios not supported in FreeAgent

Unfortunately, FreeAgent is unable to calculate an accurate Corporation Tax liability for companies within any of the following scenarios.

End of year: director owes the company money

At the company’s year end date, FreeAgent adds together the balances of the following accounts:

  • 900 - Smart User Payments
  • 902 - Net Salary and Bonuses
  • 904 - Benefits in Kind
  • 905 - Expense Account
  • 907 - Director Loan Account

If these accounts add up to a debit (i.e. overdrawn) balance, the director’s loan account is overdrawn. This indicates that the directors owe the company money.

Directors need to report year-end debit balances on their loan accounts to HMRC via a CT600A form, which is not currently supported by FreeAgent.

As a result, if you have a FreeAgent user with the role of ‘Director’ or ‘Shareholder’ who has an overdrawn director’s loan account at the company’s year end, your company will not be able to use FreeAgent to file its Corporation Tax return. You can find out your Corporation Tax responsibilities if a director owes money at the company’s year end on the government’s website.

Carrying trading losses backwards

FreeAgent automatically carries trading losses forward and offsets these against future profits that the company earns.

FreeAgent pre-populates your CT600 return for you, so if you have carried trading losses backwards in the past then FreeAgent will not reflect that in its computations. You should speak to your accountant in this situation as you’ll not be able to use FreeAgent to file Corporation Tax to HMRC.

Trading losses prior to 1st April 2017

Prior to 1st April 2017, trading losses had to be offset against profits arising from the same trade. However, from 1st April 2017 trading losses could be offset against any type of profit made by the company.

FreeAgent only supports the carrying forward of trading losses that are allowed to be offset against any type of profit made by the company. If you have unused trading losses that arose prior to 1st April 2017, you should speak to your accountant as you’ll not be able to use FreeAgent to file Corporation Tax to HMRC.

Dividends received from other companies

If any of the following scenarios applies to your company, you will need to report the information to HMRC via specific boxes on the CT600 form which are currently unsupported in FreeAgent. In this situation, you won’t be able to file your CT600 through FreeAgent and will need to ask your accountant for more help:

  • Your company holds shares in other companies and you received a dividend within the same period as your tax return.
  • Your company holds investment funds and you received a dividend within the same period as your tax return.

Buying or selling investments: profit or loss from trading in investments

The reporting of profit or loss from buying or selling shares or from an investment fund a company holds or manages is currently not supported by FreeAgent and will need to be reported to HMRC via specific boxes on the CT600 form.

Charitable donations

FreeAgent doesn’t support the box for recording qualifying charitable donations in the CT600 form (box 305). If a company makes these donations, FreeAgent will include the figures as part of the company’s allowable expenses. 

In this scenario, FreeAgent’s overall Corporation Tax calculation will be correct. However, companies should not use FreeAgent to file their CT600 form to HMRC because without box 305, the content of the form will be incorrect.

Companies limited by guarantee

FreeAgent does not currently support CT600 filing for companies that are limited by guarantee.

If any of these scenarios applies to your company, you should speak to your accountant as you’ll not be able to use FreeAgent to file Corporation Tax to HMRC.

How FreeAgent calculates your company’s Corporation Tax liability

FreeAgent produces a full computation by using the figures that you've entered into your accounts. You’ll see your liability in the ‘Corporation Tax’ section and in the Tax Timeline on your FreeAgent Overview screen.

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Adjusting the figures

If your company's Corporation Tax figure in FreeAgent is different to your accountant's figure, you will need to work out the difference between the two figures and post this difference as a pair of journal entries as follows:

  • If your accountant's figure is higher than the figure in FreeAgent (i.e. you have more tax to pay), then you should credit account ‘820 Corporation Tax’ and debit code ‘502 Corporation Tax Expense’.
  • If your accountant's figure is lower than the figure in FreeAgent (i.e. you have less tax to pay), then you need to debit code ‘820 Corporation Tax’ and credit account ‘502 Corporation Tax Expense’.

The journal entries should be dated as at the end of your accounting year. Don't post the whole figure that your accountant says is payable as a single entry or you will double-count the payment. If you’re in any doubt about how to do this, please speak to your accountant.

Following this process will ensure that your Corporation Tax liability in FreeAgent is correct but it won’t have an impact on the pre-populated CT600 form or its supporting computations.

Filing your Corporation Tax return

You can file your Corporation Tax return to HMRC through FreeAgent after you've filed Final Accounts to Companies House in FreeAgent.

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