Calculating Corporation Tax when Rate Changes

[philip@wellwoodhoyle]

Even though the profits should be strictly time apportioned, for any companies where the proportion of profits are likely to be higher in the earlier part of the accounting year and less in the later part, you can shorten your company year end and have, say, a six month accounting period all at the lower rate. Obviously the figures have to be large enough to justify the hassle of changing the year end, but it is something to think about if the circumstances dictate.

[Bluebird]

yep, I just had a look at HMRC...

http://www.hmrc.gov.uk/ctsa/mrr_worksheet.htm

[Maxamus]

Response from my account:

"Following the budget yesterday, you are correct in stating that the profits
in the company will be taxed at 20% from 1 April 2007 and therefore this
will mean that the first 3 months of your year (from incorporation) will be
taxed at 19% and thereafter at 20%."

[Nixon Williams]

If the company's year staggers the financial year then the profit is allocated based on the days in the period.

So if the year end is 30th September 2007, 50% of the profit would be taxed at 19% and 50% at 20%.

It does not matter when in the year the profit was generated.

Alan

[Bluebird]

mmm, it's a good point.

I would have thought that logically most businesses calculate their profit once a year when their "accounts" are drawn up at trading period end, I would think therefore that HMRC will apply the new rate of CT for the WHOLE profit at that point.

[martinb]

Since CTax is increasing from 19% to 20% from April, I am trying to figure out the most cost effective way of invoicing and making purchases.

My company tax year ends 30 September. How is corporation tax calculated when my company tax year spans two corporation tax rates?

Is this correct.....
Profit for period 1 October 2006 to 31 March 2007 calculated and 19% CTax applied
Profit for period 1 April 2007 to 30 September 2007 calculated and CTax of 20% applied.
Total CTax laiblity is the sum of the two above figures?

If so, this implies I should invoice as much as possible by 31 March (so it'll effect my profits whilst the tax is 19%) and defer any purchases until after 1 April so it'll REDUCE my profits when the tax has increased to 20%.

I reckon this could make a difference of a couple of hundred quid to me.

Any of our esteemed accounting contributors care to comment on whether my argument is correct or whether I am barking up the wrong tree?