What is corporation tax?
Corporation tax is a a tax on the profit the business generates each financial year. Tax is accrued throughout the financial year on the Profit & Loss report, and paid in one lump sum each year on a month of your choosing.
Not all profit is taxable, to find out how Brixx treats taxable profit, see the end of the guide.
When is corporation tax paid?
Tax is paid after the financial year in which it is accrued. If my business' financial year is January 2019 - December 2019 then I will only know how much corporation tax is owed in December 2019 - this tax will then be payable in 2020. In the UK, corporation tax can usually be paid within 9 months and 1 day of the business' financial year end.
Financial year end is set in Settings in the General Settings tab. This determines the 12 month period over which corporation tax accrues.
How do I use corporation tax?
Corporation tax is managed on a single tab in Settings. Here you can enter the month of the year tax is paid, the rate of tax that is applied to the plan, and any existing tax the business already owes:
1. Setting tax rate and 'Paid in' month
- Open a plan
- Click on 'Settings' in the top left of the screen
- Click on the 'Corporation Tax' tab
- Select the month of the year that you pay corporation tax from the 'Paid in' dropdown menu.
- Enter the rate of corporation tax that applies to your company. At the time of writing, this is 19% in the UK.
2. Making future changes to the corporation tax rate
- Go to the 'Corporation Tax' tab.
- To model future changes in corporation tax rates click '+ ADD FUTURE RATE CHANGE'. This will show a new % tax rate field and a date.
- Click on the calendar icon to set the date that you want the new rate to take effect from.
- Enter the new rate below. This new rate will continue from then until the end of the plan.
- To make further changes, click '+ADD FUTURE RATE CHANGE' again. To remove a rate change, click 'X REMOVE'
3. Corporation tax owed from before the plan start date
If the business owes any tax from before the start date of the plan, this can be entered on the corporation tax tab as well. Brixx cannot automatically calculate this, because it does not include any data from before the plan's start date.
If you are planning a new business, you will not have any tax owed from before the start of the plan as the business has not yet generated any profit for tax to be applied to.
- Go to the 'Corporation Tax' tab.
- Under the 'Paid in' input you will see a tickbox labelled 'Is there any tax still owed from before the plan start date?'
- This option is ticked by default and shows the payment (or payments) that you can make for previous financial years.
- If the plan starts part way through a financial year, then the payment entered for a partial financial year will be added to the tax calculated for the portion of that financial year that occurs after the plan start date.
- In some cases you may have two fields present, for one whole previous financial year and a partial financial year, both of which can have tax payments entered.
Entering tax owed from before the start of the plan has an affect on the Opening Balance, counting as a liability.
What is taxable profit and how does Brixx calculate corporation tax?
Brixx uses a simple calculation for corporation tax.
- Apply the % corporation tax rate to the taxable profit each month.
- If the month makes a loss rather than a profit, apply the corporation tax % to this loss as a tax adjustment.
- Accrue 'Taxation and adjustment for losses' over the plan's financial year.
- If any tax is owed, pay this tax after the financial year has ended, in a month of your choosing.
- Alternatively, if no tax is owed at the end of the year and a tax adjustment has been accrued, carry this adjustment through to the next financial year.
Taxable profit in Brixx excludes depreciation expenses.
Some financial activities are excluded when calculating taxable profit. Depreciation expenses are a common example of this, and currently depreciation is the only P&L item which is excluded from taxable profit calculations in Brixx. This means that if you have depreciation (from Asset components) in your plan, then taxable profit will be higher than your profit before tax on the Profit & Loss report.
In reality, working out taxable profit adjustments can be more complicated than this - for example in the UK expenses from entertaining clients cannot be included in the taxable profit calculation. In the future Brixx will handle these more complex cases. For the present, corporation tax is intended as a simple guide for roughly how much corporation tax is accrued and paid.