How to record Corporation Tax so it isn't included in expenses

smallBizsmallBiz Member Posts: 3

Hi there,
I don't seem to be able to find any information on how to include this tax in expenses... Can someone explain a simple example. Say my profits at £1000 and I owe £200. How do I expense this so that is doesn't change my profits for the year, which are of course still £1000.




  • MerlinAccounts_UKMerlinAccounts_UK Member Posts: 177 ✭✭✭


    As a Ltd company your corporation tax liability is an expense ie it reduces profits. This is not the same as paying personal income tax which should be categorised as drawings if using the company funds to pay it (though your shouldn't do that unless the company owes you money sufficient to cover your personal spending from the company funds).



  • smallBizsmallBiz Member Posts: 3

    An expense, yes. I understand that. But it isn't an operating expense, right? It's a capital expense. Wave doesn't seem to have a category for me to put expenses that aren't "allowable."

  • MerlinAccounts_UKMerlinAccounts_UK Member Posts: 177 ✭✭✭


    No, its not a capital expense, it is a deduction from profits, just not deductible before you calculate the taxable profits.

    It does still need to feature in your profit and loss.



  • MerlinAccounts_UKMerlinAccounts_UK Member Posts: 177 ✭✭✭

    Just a thought for you, if you are wanting to make a provision for the liability on an ongoing basis, so that you keep track of what you may owe, you can always enter as a journal, debiting the charge to your profit and loss, and crediting liabilities (corporation tax).

    When you physically pay the tax you would allocate the payment against the liability.



  • smallBizsmallBiz Member Posts: 3

    Yes, that is what I currently do. It seems it was set up correctly already. Thank you.

  • MerlinAccounts_UKMerlinAccounts_UK Member Posts: 177 ✭✭✭

    No problem :)

  • harveydtharveydt Member Posts: 5

    I don't want to necessarily have to make make journal entries or provisions for corporation tax and have recently paid CT. I want to allocate the expense type as corporation tax but there doesn't seem to be a suitable category.

    Have I missed it, or is it something that could be added?

  • RamonRamon Member Posts: 1

    Thanks @MerlinAccounts_UK , I had the same doubt than @Harverydt,

    If I understood correctly Corporation tax is an expense deductible since accounting point of view but not since taxable point of view,
    Example: Let's say we close period and our:
    Original Accounting profit £1000
    We (separately in excel not in Wave) make same adjustments to calculate the taxable profit:
    Depreciation £50
    entertainment £100
    And **Adjustments **Corporation tax of charged of the period £15 (*)
    total Taxable profit: £1000 + 50 + 100 + 15 = 1,165
    Estimate tax 19%/1,165= 221.35
    That amount 221.35 will posted (in Wave) as Bill purchase ( I have already created a Vendor Called "Hmrc corporation tax" and an Operative expense called "Corporation tax payable"), obviously Profit will vary, however i believe that posting should be done the last day of the period, so when we open the new period only the liability is visible in BS.
    Also, that expense (Corporation tax) is reducing the profit, therefore the retained profit that is available for dividends, which is right.

    (*) During the financial period we will have in our PL as expense only the adjustments for differences between Estimate Corporation tax and real Corporation tax, Due the Estimation of CT will be done at the end of the period, last day only. (I believe)

    Make sense?

    edited July 2, 2019
  • The_CardinalThe_Cardinal Member Posts: 2

    Hi @MerlinAccounts_UK, sorry to jump in on somebody else's question, but could you please explain this further:

    'Just a thought for you, if you are wanting to make a provision for the liability on an ongoing basis, so that you keep track of what you may owe, you can always enter as a journal, debiting the charge to your profit and loss, and crediting liabilities (corporation tax).'

    This is exactly what I would like to do but I don't know what P&L account to debit. Do I need to create one, and if so, where? Is it an Operating expense which I should call "Corporation Tax Payable" as described by @Ramon?
    I'd really appreciate a full explanation if you have time.

    edited March 28, 2020
  • NiranjanDNiranjanD Member Posts: 11
    Hi all,

    I have similar problem. The platform doesn't have any option for adding Non-operating Expenses, that comes after the Operating Profit, such as Corporation Income Tax, gain/loss on investments, etc.

    Since this is something universal and is required by all, I have created a post in the new features section. I'm trying to gather support on the same so that it catches attention of developers. Would be great of you all could comment in that post for this. Below is the link for the same.
  • joshperrinjoshperrin Member Posts: 2

    If anyone ends up here and just needs a simple solution.

    I just used journal entries to debit and credit a Taxes payable liability account. Don't bother making it an expense. That way it'll properly reflect in your balance sheet, and your bank account will reconcile, but it won't throw off your P&L statement.

    So when you incur the income tax:
    Retained Earnings (Profits) -- Debit
    Taxes Payable -- Credit

    When you pay the income tax:
    Taxes Payable -- Debit
    Bank Account -- Credit

    edited April 3, 2021
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