Corp tax calculation

[Gros]

Hello again,

could someone possibly give a beginners guide to calculating corporation tax? I have a vague idea, but not sure where some of the factors come into play.

I'm talking for the company year 2007, and the factors I need to take into account are:
- minimum salary (£450ish/month)
- dividends (hence nil PAYE/NI)
- FRS VAT
- minimal expenses (travel and home office costs)

Of course, my spreadsheet tells me the answer, but like many of you I like to work out the figures for myself.

Cheers!

[malvolio]

Gross income less all costs multiplied by 21% (this year) should do it.

Expenses are all outgoings, costs of sales, wages, Employers NICs and business-related purchases, Employee's tax and NICs paid under PAYE, office rentals, depreciation, yada yada yada... VAT is not really in the system, strictly speaking, but you'll have paid that out so it works as an expense (real VAT, as opposed to FRS, is different)

Slightly worried you ask about dividends - which are paid out of net profit after CT is paid - and combining them with PAYE/NI. Do you really understand the concepts properly? "Vague ideas" are not a good basis for working out key calculations that can land you in trouble if you're wrong. And if you don't know the rules, I hope that's someone else's spreadsheet you're using.

[Gros]

Slightly worried you ask about dividends - which are paid out of net profit after CT is paid - and combining them with PAYE/NI. Do you really understand the concepts properly? "Vague ideas" are not a good basis for working out key calculations that can land you in trouble if you're wrong. And if you don't know the rules, I hope that's someone else's spreadsheet you're using.

Thanks Malvolio. Yeah it's the SJD spreadsheet, who I am no longer with this year. I only ever did what I was told to do by them, so immediately paid myself dividends as soon as I was earning last year after the company was formed. But yes, there is enough in the coffers to cover it, I just want to learn the ropes for myself!

How does the FRS VAT get involved in my calculations?

And is your percentage figure of 21% what I use for 2007?

Cheers.

[malvolio]

Ermmm.... Sure you don't need an accountant? OK, your funeral, but these are basics.

21% is this tax year. Last year it was 20, next its 22, then it's 23 (then, God willing, we get a governement that understand fiscal policy). That was all set in the budget a year or so back. So what do you do if your company year crosses two tax years?

Do you also understand FRS properly? You take all your gross income per quarter from any source - sales invoices, bank interest, VAT charged, returned CT, whatever - and pay 13% (or whatever) to Hector. AS far as CT is concerned it's an expense and is part of what turns gross income into taxable profit. In other wrds, for your purposes, it's an expense. So what about the sum that is made up of what you charge in VAT and what you pay in VAT. Is that part of your profit?

How do you depreciate your assets and what impact does that have on CT?

I'm assuming you are outside IR35 by the way, else you really are in trouble!

So many questions... if only there were an expert to turn to...

[Gros]

So many questions... if only there were an expert to turn to...

Isn't that what you're here for?


Ok, ok, enough already! Yeah, I probably do need an accountant again. The problem is, having ditched the last one in Feb, I'm not sure if I take a new one on now that they will handle the forthcoming returns for last year. Why should they? Also, I wasn't working for a while, and even now I'm not sure where the next contract is coming from after next week, so didn't see much benefit in forking out accountancy fees when there was nothing to account for!

[Archangel]

You take all your gross income per quarter from any source - sales invoices, bank interest, VAT charged, returned CT, whatever - and pay 13% (or whatever) to Hector.

Flat rate VAT is only charged on items related to sales, so bank interest (and tax refunds etc) are excluded.

[malvolio]

Flat rate VAT is only charged on items related to sales, so bank interest (and tax refunds etc) are excluded.

I use real VAT so am no expert in FRS, but I thought it was charged on total gross income to keep it simple, which is the whole point of it - but let's hope an expert turns up and confirms it one way or the other.

[Moscow Mule]

I use real VAT so am no expert in FRS, but I thought it was charged on total gross income to keep it simple, which is the whole point of it - but let's hope an expert turns up and confirms it one way or the other.

Nope - calculated on turnover

How do I use the basic turnover method?

Apply the flat rate percentage for your business to the VAT inclusive total of the supplies that have their tax point in the VAT accounting period.
Tax points are worked out using the normal VAT rules for time of supply. If you issue VAT invoices, this is often the date you issue an invoice. But in some circumstances it will be the date you receive payment, or the date you complete a service or make goods available to your customer.
The detailed rules which you must follow are in Notice 700 The VAT Guide.

[Lewis]

I use real VAT so am no expert in FRS, but I thought it was charged on total gross income to keep it simple, which is the whole point of it - but let's hope an expert turns up and confirms it one way or the other.

Been discussed on Shout99 a lot recently. Bank Interest is not included when calculating FRS VAT due, confirmed by HMRC. See here
http://www.shout99.com/contractors/s...?id=52409;n=10

[xoggoth]

You should find calculations with examples on HMRC webtulipe.