This article explains how FreeAgent’s Corporation Tax functionality for limited companies 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.
Please note that at the moment, Final Accounts filing isn’t available in FreeAgent and you can’t yet enter comparative figures for your first year of using 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’.
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.
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.
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.
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. You can use the information in the CT600 form to submit your accounts to HMRC and Companies House outside the FreeAgent environment. We strongly recommend that you work with an accountant to do this.
Please note, the CT600 form is only available for accounting years ending on or after 27th October 2020. Accounting periods ending before this date will still have a Corporation Tax projection calculated.
Corporation Tax scenarios not supported in FreeAgent
Unfortunately, FreeAgent is unable to calculate Corporation Tax liability for companies within any of the following scenarios.
Carrying trading losses backwards
FreeAgent automatically carries trading losses forward and automatically 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 before considering whether you can use FreeAgent’s Corporation Tax functionality.
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 before considering whether you can use FreeAgent’s Corporation Tax functionality.
End of year: director owes the company money
If, at the company’s year end, any of the directors’ loan accounts have a debit balance it indicates that the directors owe the company some money. Directors need to report debit balances on their loan accounts to HMRC via a CT600A form, which is currently unsupported by FreeAgent.
If you have a directors’ loan account balance at your year end, you should speak to your accountant before considering whether you can use FreeAgent’s Corporation Tax functionality. You can find out your Corporation Tax responsibilities if a director owes money at the company’s year end on the government’s website.
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:
- 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.
If any of these scenarios applies to your company, you should speak to your accountant before considering whether to use FreeAgent’s Corporation Tax functionality.
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.
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.