Freelancers' Questions: How to fill in my first corporation tax return?

Freelancer’s Question: As the director of my brand new company, I’m to produce my own financial statement for my accounts.

But how do I calculate corporation tax to include it on the end-of-year financial statement? What should I beware of when doing this; are there any pointers to note or pitfalls?

Expert’s Answer: It almost goes without saying (but I am compelled to say it anyway), if you are asking this question, then you are probably ill-equipped to deal with your own corporation tax return.

I understand a new trader’s reluctance to spend hard-earned money of what may appear to be a simple arithmetic calculation, but it takes knowledge and experience to get that calculation right. A small investment now in a professional accountant’s time may result in significant savings and less HMRC hassle.

But you have asked for pitfalls and pointers so -- in no particular order -- here are some questions to answer to give you an overview of the key considerations:

1) Are your accounts prepared on an accrual or a cash basis? Including invoices that have not yet been paid may have a significant impact on your cash flow.

2) Is any of your company’s income subject to a “deemed salary” calculation? In other words, is any of it caught by IR35, and if not, have you documented evidence of your IR35 treatment?

3) Have you treated any extra income resulting from the Flat Rate VAT Scheme properly?

4) Have you satisfied yourself that all your expenses are tax deductible? In my experience, this is the area where most unqualified people get it wrong. What may seem to you to be a legitimate business expense may be subject to certain rules that are not as intuitive as you think.

5) Have you added back any amounts included in your accounts for depreciation and applied the appropriate “capital allowances” to any assets owned and operated by your company? This can be more complicated than you may think as there are a number of different treatments for capital allowance, depending on the asset type and year that the asset was acquired.

6) If your company owns your car, the tax treatment can be complicated, particularly as applied to “private use”.

7) Are you applying the correct level of corporation tax to the correct income? Although unlikely, your company’s year-end may not coincide exactly with your company’s tax year.

This is not by any means a complete list, but hopefully it should be enough to convince you to seek professional help from an accountant. Something as important as your taxes and keeping compliant should not be scrimped on!

The expert was Barry Roback FCA, director of the Anderson Group.

 

4th May 2017

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