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Report name: Sample Forecast

Forecast Corporation Tax

HMRC rules and how they work: An example of how Figurewizard calculates and applies your capital allowances, taxable profit, and corporation tax forecast.

forecast for year beginning the 1st.May 2017May 2018May 2019

Period 1 - Corporation Tax Year Starting 1st. April:

201720182019

Period 2 - Corporation Tax Year Starting 1st. April:

201820192020
Corporation Tax Period 1 - Days335335336
Corporation Tax Period 2 - Days303030
    
Net Profit before Tax94,38199,038252,249
add: Depreciation10,87617,54320,290
Adjusted Pre-Tax Profit Cfwd105,257116,581272,539
less: Tax Losses Bfwd000
less: Capital Allowances Period 130,84917,65822,734
less: Capital Allowances Period 22,7631,5812,030
add: Balancing Charge000
Taxable Profit Cfwd Period 165,75789,341227,466
Taxable Profit Cfwd Period 25,8898,00120,309
Taxable Profit for the Year71,64597,342247,775
    
Corporation Tax Rate - Period 119%19%19%
Corporation Tax Rate - Period 219%19%19%
Corporation Tax Charge - Period 112,49416,97543,219
Corporation Tax Charge - Period 21,1191,5203,859
Tax before Marginal Relief13,61318,49547,077
Marginal Relief Period 1000
Marginal Relief Period 2000
Corporation Tax Payable13,61318,49547,077
    
Tax Loss Cfwd000

How the Corporation Tax Forecast is Calculated

This example shows how Figurewizard calculates and displays your corporation tax forecast. As with all the forecasts this is done simply from your figures for sales, margin, overheads, finance and investment and a few simple ratios.

That includes calculating and applying first year allowances, capital allowances, and balancing charges when applicable.

How the Taxable Profit Forecast is calculated

Corporation tax is not calculated from the net profit C/Fwd as shown in the profit and loss forecast. It is instead calculated on the taxable profit, which is very different.

Provisions are excluded from taxable profit as they do not involve transfers of cash. These include depreciation and provisions for bad debts. Expenditure that is perceived to be unconnected with core trading activity or that is specifically disallowed for tax releif purposes (e.g. entertainment) is added back to taxable profit.

Capital allowances substitute for depreciation, whhich in the case of main pool assets affords 100% relief in the year of acquisition.

Corporation Tax 2021 to 2023

For tax years 2021 2022 .corporation tax remains at 19% on all taxable profits.

That changes for 2023. Apart from, profits to £50,000, 2023 will see a sharp increase in corporation tax plus a concessionary SME rate and the re-introduction of marginal relief as follows.

Profit Limit Tax Rate Marginal Profit Upper Threshold Marginal Profit Lower Threshold Marginal Fraction
£50,000 19% n/a n/a n/a
£250,000.. 25% £250,000 £50,000 3/200
n/a 25% n/a n/a n/a

Tax and Marginal Relief

To see for yourself how marginal relief for 2023 will be calculated and applied to the corporation tax charge, click here.

Capital Allowances and Depreciation

Capital allowances are substituted for depreciation to arrive at the taxable profit. The rate of capital allowance depends on the type or function of the asset.

Fixed assets that you would normally expect to see employed in any business such as plant & machinery, computers, office equipment, fixtures & fittings and commercial vehicles are categorised by HMRC as "main pool". These are subject to generous first year allowances.

Assets such as property and company cars or intangible assets such as patents or trade marks are not main pool assets and are assigned to their own special asset pools. These generally attract less generous allowances.

Main Pool Capital Allowances

HMRC calculates capital allowances by the reducing balance method. The rates of main pool capital allowances for the foreseeable future are as follows.

Capital Allowances - Main Pool Assets  2021 / 2022
Annual Investment Allowance limit £1.000,000
New Assets - Annual investment allowance rate 100%
New Assets - Value above annual investment limit rate 18%
Written Down Assets B / Fwd. rate 18%

Short Life Asset Pools

There is a link below to an article on assigning short life main pool assets to individual pools.

This will chiefly be of interest to companies forecasting substantial annual main pool asset purchases in excess of the AIA threshold and with a predicted useful working life in the business of not more than eight years.

CO2 Emissions and Capital Allowances for Cars

A car's CO2 emissions (i.e. grammes per kilometre) determines the rates for capital allowances: These are calculated by the reducing balance method. There is no AIA for cars with emissions above 50 g/KM

Capital Allowances for Company Cars  2021/ 2022
Cars with Emissions up to 50g/Km 100%
Cars with Emissions of 51 -110 g/Km 18%
Cars with Emissions above 110g/Km 8%

The Balancing Charge

Cost less total capital allowances claimed describes the written down tax value of an asset pool.

If one or more assets are sold in the course of a financial year for more than the written down tax value of the whole of their asset pool, the difference between the two becomes a capital profit, which HMRC refers to as a "balancing charge". That will be added to the taxable profit.

Trying Figurewizard Out is Free

As a visitor you can either go to the forms using the edit button or select the What-If Calculator and make changes to this sample's sales, overheads, investment and financing options. 

Making those changes are one-click operations: Everything relating to the forecasts including profit after tax changes in real time.

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