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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:


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

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 Your 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..

Non Deductible Overheads and Expenses

HMRC (Her Majesty's Revenue and Customs) does not recognise entertainment expenses, fines and provisions; such as for bad debts and depreciation that have been charged to profit as tax deductible.

The same goes for overheads that are not regarded as having been incurred "wholly and exclusively" in the pursuance of trade.

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 are as follows.

Capital Allowances - Main Pool Assets 1st April to 31st March 2018 / 2019 1st April to 31st March 2017 / 2018 1st April to 31st March 2016 / 2017
Annual Investment Allowance limit  £200,000 £200,000 £250,000
New Assets - Annual investment allowance rate 100% 100% 100%
New Assets - Value above annual investment limit rate 18% 18% 18%
Written down assets B/Fwd from previous years rate 18% 18% 18%

Since 2008 AIA had flutuated wildly betwee £25,000 and £500,000. In 2016 it was announced that it was to be "permanently" set at £200,000.

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  2018/ 19
Cars with Emissions up to 50g/Km 100%
Cars with Emissions of 51 -110 g/Km 18%
Cars with Emissions above 110g/Km 8%

For the purpose of Figurewizard corporation tax forecasts it is always assumed that your company cars fall within the worst case scenario of 110g/Km upwards emissions range.

Low Emission Company Cars 2021

Included in the 2017 budget proposals was that the 100% annual investment allowance (AIA) for cars with the lowest emissions is to be extended by a further three years to 31st. March 2021.

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.

Corporation Tax Rates

Until tax year commencing 1st. April 2015 there were two different basic rates of corporation tax; i.e. small and standard as measured by the size of taxable profits. These differential rates no longer apply.

Corporation Tax Rates 2020 / 2021  2019 / 2020 2018/ 2019  2017/ 2018
Small - Taxable profit not exceeding £300,000 19% 19% 19% 19%
Standard - Taxable profit greater then £300,000 19% 19% 19% 19%

This unified rate is scheduled to remain at 19% by 31st March 2019. From April 1st. The proposed reduction of the rate from 2020 to 17% has been scrapped. Corporation tax therefore remains at 19% for the forseeable future.

Interactive Facility for visitors to Figurewizard

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. 

If you opt to use the What-If Calculator / Planner you will see how profit after tax changes when items such as gross profit margin, overheads, year-end stock or fixed asset investment values are changed.

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

Marginal Relief Fraction

Until 2015 / 2016 there was a further allowance against taxable profits (marginal relief) between £300,000 and £1500,000.

Rates of Marginal Relief 2015 / 2016 2014 / 2015 2013/ 2014 2012 / 2013
Marginal Relief Fraction - Divide by n/a 400 400 400
Marginal Relief Fraction - Multiply by n/a 1 3 4

How Marginal Relief was Calculated

Further corporation tax relief was provided for taxable profits between 300,000 and 1,500,000 by way of marginal relief. Assuming a financial year starting 1st. April 2012 and a taxable profit of £350,000 the following table shows how marginal relief used to be calculated:

Description 2012 / 13
Upper limit for marginal relief  £1,500,000
Less: Taxable profit  £350,000
Balance carried forward £1.150,000
Divide Balance carried forward by 400 £2,875
and Multiply by 4 - i.e. Marginal relief £11,500
Corporation Tax - i.e. £350,000 x 24% £84,000
Corporation tax payable after deducting marginal relief £72,500

Phasing out Marginal Relief

The multiplier for marginal relief has always been directly associated with the difference between the standard and small rates of corporation tax. For example that difference in tax year 2012 / 2013 is 4%, making the marginal relief multiplier 4.

As a result of the 2013 budget the small and standard rates of corporation tax will be unified at 20% from 1st. April 2015; bringing marginal relief to an end.

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