How FreeAgent handles Corporation Tax

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.

Select ‘Settings’ from the drop-down menu in the top-right 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 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 CT600 form by selecting the ‘CT600’ tab. 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.

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. 

FreeAgent uses the financial data you enter throughout the year to populate most of your Corporation Tax return. All you have to do is check the figures and enter the remaining information. FreeAgent then calculates your tax bill and allows you to file your completed tax return directly to HMRC.

Associated companies

If your company has any associated companies during the accounting period covered in this tax return, you will need to report them to HMRC on your CT600 form.

A company is an associated company of another company if one has control of the other, or both are under the control of the same person or persons. A company may be an associated company no matter where it is resident for tax purposes. Companies may also be associated if they are financially, economically or organisationally dependent on each other.

When you’re counting how many associated companies your company has, don’t include any companies that have not carried on any trade or business at any time during the accounting period. Find out more about associated companies on HMRC’s website.

Enter the number of associated companies in this period in box 326.

If this period straddles two financial years, enter the number of associated companies in the first financial year in box 327.

Then enter the number of associated companies in the second financial year in box 328.

Marginal Relief

Marginal Relief provides a gradual increase in a company’s Corporation Tax rate between the small profits rate and the main rate.

Your company or organisation may be entitled to Marginal Relief if its taxable profits from 1st April 2023 are between £50,000 (the lower limit) and £250,000 (the upper limit).

FreeAgent will automatically select ‘Yes’ in box 329 if your company’s taxable profits from 1st April 2023 are between these limits.

Please note that these limits will be proportionately reduced by the number of associated companies your company has, so please make sure you have filled in boxes 326-328 (where applicable) correctly. This should be done as soon as possible, in order for the number of associated companies to be reflected within the corporation tax liability calculation. The limits will also be reduced if your accounting period is shorter than 12 months. Find out more about marginal relief in HMRC’s guidance.

FreeAgent will automatically calculate the amount of marginal relief that your company is entitled to and enter this in box 435. You can use HMRC’s calculator to check how FreeAgent has calculated this figure if you’re unsure.

Entering coronavirus payments or overpayments

If your company was entitled to any coronavirus payments or received any overpayments during the accounting period covered in this tax return, you will need to report them to HMRC on your CT600 form. This includes Coronavirus Job Retention Scheme (CJRS), Job Support Scheme (JSS), Job Retention Bonus (JRB) and Eat Out To Help Out (EOTHO) payments.

Coronavirus Job Retention Scheme (CJRS) and Job Support Scheme (JSS) payments

Enter the total amount of CJRS and JSS payments that you claimed for the accounting period covered in the tax return into box 471.

Enter the total amount of CJRS and JSS payments that you were entitled to claim for the accounting period covered in the tax return into box 472.

Enter the total amount of CJRS and JSS overpayments that have already been assessed by HMRC, either paid or unpaid, for the accounting period covered in the tax return into box 473.

You should include payments that have been voluntarily returned to HMRC in box 473, but don’t include any payments that you’ve disclosed but not repaid.

Job Retention Bonus (JRB) and Eat Out To Help Out (EOTHO)

Enter the total amount of JRB and EOTHO overpayments that you have received and not repaid for the accounting period covered in the tax return into box 474.

Enter the total value of any EOTHO scheme claims that are included as part of your turnover for this accounting period into box 647.

If you’re unsure about the amounts that you need to enter on your CT600 form, please check with your accountant or with HMRC.

End of year: director owes the company money

If the director’s loan account adds up to a debit (i.e. overdrawn) balance at the company’s year end date, 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. You can enable the supplementary page by selecting ‘Yes’ to box 95 of your CT600 form.

Find out more about completing a CT600A form in FreeAgent.

How FreeAgent calculates your company’s Corporation Tax liability

For a full year

FreeAgent produces a full computation by using the figures that you've entered into your records.

You’ll see your liability in the ‘Corporation Tax’ section and in the Tax Timeline on your FreeAgent Overview screen.

For a part year

If you view your Profit & Loss report (P&L) or Balance Sheet over a custom date range, FreeAgent produces a Corporation Tax estimate by performing the following calculation:

1. Annualising the taxable operating profits for the selected period. For example, if you’re viewing the P&L over a six month period, FreeAgent will multiply the taxable operating profit figure by two.
   
    
2. Applying an appropriate Corporation Tax rate for the company and adjusting the tax amount to match the length of the specified period.

Please note that FreeAgent doesn’t take capital allowances into account when calculating a Corporation Tax estimate for a custom date range. It also doesn’t take into account any losses the company may have made in historic periods.

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.

Corporation Tax scenarios not supported in FreeAgent

Unfortunately, FreeAgent is unable to calculate an accurate Corporation Tax liability, or generate a full form CT600, for companies within certain scenarios.

Here is a list of the more common scenarios that FreeAgent can’t support. Please note that this list is not exhaustive. As a rule of thumb, if you cannot see the CT600 box or supplementary pages you require in FreeAgent, then that scenario is likely to be unsupported.

Carrying trading losses backwards

FreeAgent automatically carries trading losses forward and offsets these against future profits that the company earns and reflects those in box 285 on the CT600 form.

FreeAgent pre-populates your CT600 return for you, so if you have carried trading losses backwards in the past, or wish to carry them backwards now, then FreeAgent will not reflect that in its computations. You should speak to your accountant in this situation as you won't 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 and need them to be shown in box 160 on the CT600 form, you should speak to your accountant as you won't be able to use FreeAgent to file Corporation Tax to HMRC.

Capital losses brought forward

FreeAgent does not support the inclusion of capital losses brought forward in the tax computation. If your company is carrying capital losses then you would need to speak to your accountant about filing your CT600 separately from FreeAgent.

Chargeable gains

FreeAgent does not support the calculation or inclusion of chargeable gains on assets sold for more than their purchase value or market value at the point of purchase. If your company sold an asset such as a piece of land, a property, or investments as above, and realised a chargeable gain on the asset, you would need to speak to your accountant about filing your CT600 outside FreeAgent.

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.

Income from a property business

Any property business run through a limited company would need box 190, which is a box that isn't supported by FreeAgent.

Research and development activity

FreeAgent doesn’t support the recording of claims for Research & Development Expenditure Credit or Research and Development tax relief. These need to be recorded on a supplementary page CT600L and submitted along with the CT600 outside of FreeAgent.

Company part of a group

If your company is a subsidiary or parent company within a group, you won’t be able to use FreeAgent to file your CT600 as that would need box 625 which FreeAgent doesn’t support.

If any of the above scenarios apply to your company, you should speak to your accountant as you won't be able to use FreeAgent to file Corporation Tax to HMRC.

Dormant companies

FreeAgent does not currently support CT600 filing for companies that are dormant.

Adjusting the figures

If your company's Corporation Tax figure in FreeAgent is different from your accountant's figure, you may be able to make the adjustments by correcting individual transactions in FreeAgent.

However, if this isn’t possible you will need to work out the difference between the two figures and create a pair of journal entries for the difference. 

If you need to make adjustments to your company's Corporation Tax figure using journal entries, you should speak to your accountant as you won't be able to use FreeAgent to file Corporation Tax to HMRC.