Working out Corporation Tax - does anyone use Freeagent?

monkey-fingers

I've been working for myself as a Ltd rather than an Umbrella since Christmas and use Freeagent. Appreciate we still have a month to go, but I'm trying to understand my Corporate Tax liability. I'm due to go through it with my accountant anyway but…… I'll give some numbers. After all my costs

Operating Profit: £36,196

FreeAgent says that Corporation tax owed is £7,926

Yet if I put it into a Corporation Tax calculator, I get this:

Band

Rate

Lower Limit

Upper Limit

Tax

Small Profits Rate	19%	0	£50,000	£6,877
Marginal Relief	3/200	£50,000	£250,000	(£0)
Main rate	25%	£250,000	-	£0

Total Tax:

£6,877

poseidon1

Always use HMRC in house calculators where available.

Using the HMRC calculator below gives the same £6877 result, so presumably you should consider Freeagent untrustworthy unless you fed it with inconsistent data-

https://www.tax.service.gov.uk/marginal-relief-calculator/results-page

monkey-fingers

https://forums.moneysavingexpert.com/discussion/comment/81912098#Comment_81912098

Yeah, thanks.

Freeagent uses "estimates"
I'm not at all comfortable with that.

I'm glad it's not just me.

Grumpy_chap

If you have only been operating as Ltd Co since Christmas (January 1st), have you set the accounting year end to align with tax year (i.e. April to March) or with calendar year (January to December)?

I assume if you were through UC until Christmas, you have drawn zero salary since inception so all profits this year?

It might be worth considering when to take a dividend to minimise the tax liability given that dividend tax rates increase on 6th April. Do you have any basic rate income tax band remaining?

Also, consider whether it is worth paying yourself any salary for January to March so that you achieve a full year of NI contributions and earn the necessary credit for your future state pension. Assuming you are not already at the maximum possible state pension accrual.

Two things to consider and ask your Accountant about for the detail.

monkey-fingers

https://forums.moneysavingexpert.com/discussion/comment/81912106#Comment_81912106

More complicated than that, sadly.

But yes, it's set to finish in April.

I was employed last year, but fortunately because of when I was let go, didn't hit the 40% tax rate. So I've left my allowances as is.

In terms of that stuff, yes, my accountant has been super helpful with this (Anyone starting a Ltd, the accountant's fees will save you more than you pay). We have a meeting in the next couple of weeks to work out how to max out dividends.

I'm going to leave some money in the business anyway, just for a rainy day. I realised it's actually better off sitting in a (albeit taxed) 4% business savings account than putting it into my ISA, having paid the dividend tax.

In future, if I'm unemployed, I can take £1k a month tax free.

And yeah, fortunately I filled up my NI last year, so don't worry about it.

Dead_keen

I'm not convinced the issue is with FreeAgent. In fact, I'd say that FreeAgent has got it right based on whatever you have told it.

So you may want to double check:

1. What FreeAgent thinks are the profits chargeable to corporation tax. These may well be quite different to Operating Profits:
   
   1. where capital assets have been bought (e.g. differences between capital allowances claimed and depreciation),
      
   2. expenses have been coded to an account that is set up as not being allowable for tax (e.g. entertainment), and
      
   3. income not included in Operating Profits.
      
2. The marginal rate relief calculation takes account the length of the company's accounting period (which may be different to length of your company's period of account - ask ChatGPT). So if your company's period of account is just over five months, the corporation tax number produced by FreeAgent may well be right. Similarly, it may be right if your period of account is a full year but your trade first started just over five months from the end of the period of account (since the corporation tax accounting period would be just over five months long).
   
3. Whether you have told FreeAgent you have associated companies, as that changes the marginal relief calculations.