Here's how FreeAgent works out your company's corporation tax projection, which you can then use to help you prepare your CT600.
Finding the Corporation Tax screen
The Corporation Tax screen is under the Taxes menu. If you're a sole trader, or your business is a partnership, you won't see this screen because your business doesn't pay Corporation Tax.
Looking at a tax year
Choose which tax year you'd like to see the figures for and select it from the list.
This brings up the Corporation Tax screen.
Entering your company trading start date
If your company started trading on a day after its incorporation date, you will need to enter that date in your FreeAgent settings. To do that, choose ‘Settings’ from the drop-down menu at the top right-hand side of the screen and select ‘Accounting dates’ from the menu of options. Enter your company trading start date and save your changes. Please note that you won’t be able to record any of your company’s invoiced or cash sales that took place before this date in FreeAgent.
Your company’s trading start date will trigger a new Corporation Tax accounting period in accordance with HMRC’s rules. This means that a new Corporation Tax return will start on your company’s trading start date. If you’re not sure what this means, or you’re unsure what your trading start date should be, please speak to your accountant.
How FreeAgent projects your company’s Corporation Tax
FreeAgent produces a full basic computation by using the figures that you've put into your accounts. This is why it's important to enter capital assets properly and to make sure your costs go into the right category, because some costs, such as business entertaining, have to be added back to the profit in your accounts before Corporation Tax is worked out.
Remember that the figures in FreeAgent are only a ballpark projection of your company's Corporation Tax figure. They may not agree to the figures worked out by your accountant but they should be in the correct region.
You may, however, notice a large discrepancy between your figures in FreeAgent and your accountant's figures if you purchase a car. FreeAgent includes a 100% capital allowance on all purchases of capital assets, so if you purchase a car, your Corporation Tax bill will be reduced in FreeAgent. However, it will not be reduced in your accountants' figures.
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:
- If your accountant's figure is higher than FreeAgent's (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 FreeAgent's (i.e. you have less tax to pay), then it's the other way round: 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 your accountant says is payable as a single entry, or you will be double-counting the payment.
Tax on the Overview screen
FreeAgent will work out the tax according to the transactions in your accounts (invoices, bills, bank transactions etc) and put this figure on the tax timeline on the Overview screen, so that you can see, at a glance, a projection of how much Corporation Tax the company is due to pay. Remember though, that this figure will not include journal entries you make direct to codes 502 and 820.
This lets you set money aside in plenty of time to pay the tax.
Remember that the Corporation Tax payment is due three months earlier than your actual Corporation Tax return. The tax timeline highlights this for you.