What account does corporation tax go under?

OK, thanks.

I am still a little unsure how to complete the payment procedure as the money is sitting in the main account?

I assume there are two procedures, 1. To record the amount and 2. to pay the amount.
The journal entry is recording the amount, ie. Credit Annual Corporate Tax expense account, debit Annual Corporate Tax liabilities account.

How would one make the actual payment out of the Annual Corporate Tax liabilities account?

You don’t pay out of the liability account. You use a payment transaction to pay from a bank account, posting the payment to the liability account.

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I see no reason not to use a receipt / payment. Doing so involves using a multiple line receipt/payment to accomplish all account adjustments at the same time when you pay your tax (money goes out of your bank to the tax office)

Think of it like this. You have a two step process.

Firstly you allocate the amount of Corporation Tax
Then at a later date, you pay the Corporation Tax

So have two separate transactions.

The first transaction where you allocate the Corporation Tax, you do a Journal Entry to debit the Corporation Tax Expense Account - as you are adding an expense to the corporation on the Profit and Loss Sheet. (Never mind the fact that it is not technically an expense). And the counter side is that you credit the Corporation Tax Payable Liability Account on the B/S in that Journal Entry.

This allocates the Corporation Tax as an expense. It has to be a journal entry because you are not paying or receiving any money at this stage. So you cannot use the bank transactions here because no money is transferred.

What I did (as you can see in my picture) is that I separated my expenses from my Corporation Tax so that my Corporation Tax (and now my Dividends) shows on the Profit and Loss Statement for each year after Income and Expenses is recorded. It is worthwhile doing this for Dividends as well - using different accounts obviously.

The purpose of allocating the Corporation Tax (and Dividends) in the way that I have done is that I can see every year on my Profit and Loss how much Corporation Tax I am paying and how much in Dividends I am receiving. You cannot do this if you only have a liability account on the B/S (such as Retained Earnings) as the B/S does not show annual figures.

So I now allocate both the Corporation Tax and Dividends via Journal entry to a Liability account on the BS and an expense account on the P&L to make it easy to see the figures annually.

When paying the Dividends or Corporations, you simply do a normal bank spend and select the Corporation Tax or Dividends Liability account on the BS. This effectively resets that liability account to nil each year as the payment balances out the allocation.

You don’t have to do it this way. The key point you need to decide is what you want to achieve when recording the Dividends and CT. I find it easier to record these on the P&L so that I create annual P&L reports each year and at a glance see these amounts.

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This is incorrect. The allocation of Corporation Tax will occur at the end of your tax year. Payment of the Corporation Tax usually takes place nine months later! So it will always be a Journal entry for the allocation and bank payment at a later date for Corporation Tax. Unless one pays the CT immediately which is very unlikely.

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That depends on jurisdiction.

This an example of a journal entry to raise a provision for income tax in Australia.

Thanks guys. I am going to take a look at this shortly and get back to you.

Ok. Then I understand and the deed is done. I followed Dalacor and it looks correct.

Many thanks,

Generally, the Self Assessment Return of Tax is an initiative of HMRC. Thanks for sharing this information.

Yes you are right

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