The first key thing to remember is to ensure everything is completed for the month that you are making the Corporation Tax provision for.
Here is a checklist to look over before making the provision:
1. End of month
- Is the bank all reconciled?
- Does the balance of the bank on Xero match the actual bank balance?
- Are my Aged Payables / Receivables sensible and correct?
- Have I ran my depreciation?
2. Run your Profit and Loss Report to find your Profit on Ordinary Activities before Taxation
Once you are happy that you have completed all of the above you need to look at your Profit and Loss Report
To select this report, please go to Reports on the top task bar > All Reports > Profit and loss (NEW) > Select the period e.g. last month using the drop down date boxes and then update.
Please ask Shelley if you would like a custom report template set up as a default Profit and Loss, to make it easier for you to manage your Profit on Ordinary Activities Before Taxation in the future (see below).
3. Calculate your Corporation Tax Provision
Next, take your Operating Profit figure and calculate 19% of it, this 19% is the Corporation Tax provision value.
Please remember to add back any Corporation Tax costs and dividends already showing for the period, as these are not expenses deductible for tax.
4. Complete your CT Provision
a) To complete your CT Provision you need to select the Adviser tab on the top task bar and then Manual Journal > New Journal.
b) In the narration box in the new journal you have created, please write the last day of the month you are completing the CT Provision for. As you tab through the journal the narration will auto-fill into the description box below.
c) If you have made a profit you need to debit your Corporation Tax Charge and credit your Corporation Tax Control (Liability) with the balance you calculated above in Step 3.
d) If you have made a loss you need to debit your Corporation Tax Control (Liability) and credit your Corporation Tax Charge with the balance you calculated above in Step 3.
Note: Each item on the account drop down list has a numerical code, for each company the codes will be slightly different but as a rough guide to check you have selected the right items, your Corporation Tax Charge (Expense) will normally have a numerical code in the 800’s, and your Corporation Tax Control (Liability) will normally have a numerical code in the 400’s.
The journal should always balance.
Please see the example below:
If you have any questions please contact our Xero Advisor, Shelley