corporate tax on net profit

[Swarbrick]

Hi
I am trying to get my head around understanding corporate tax. I will get an accountant when it comes to filling out the corporate return but I would like to understand it myself.
my Net profit is around 15k is this the sum I pay 21% tax on. so how does it work if I already reinvested this profit in to more product stocks. I.e. it looks like there is a nice profit sitting in my bank account but it has all been reinvested...

Does the the calculations actually take in to consideration how the stock increases?
Thanks for explaining.
Best wishes
L

 

[RAL]

As you rightly said that you re-invested money back into the business.

You pay the tax on the net profit. I presume that you adjusted stock for year end purpose.

 

[elaine@cheapaccounting]

Cost of sales =

opening stock plus purchase less closing stock.

This is off set against profit for the year and the profit is taxed.

 

[elaine@cheapaccounting]

read here:

http://www.franklyaccounts.co.uk/glossarycosts.php

 

[Jenni384]

Hi
I am trying to get my head around understanding corporate tax. I will get an accountant when it comes to filling out the corporate return but I would like to understand it myself.
my Net profit is around 15k is this the sum I pay 21% tax on. so how does it work if I already reinvested this profit in to more product stocks. I.e. it looks like there is a nice profit sitting in my bank account but it has all been reinvested...

Does the the calculations actually take in to consideration how the stock increases?
Thanks for explaining.
Best wishes
L

Stock is not a cost if you still have it at year end.

Lets say your opening stock was zero, and then you bought 10k of stock and sold this for 25k. This gives you your profit figure of £15k.
Lets say you then spent the 15k on more stock, and you bank balance is now zero.

As you still have the 15k in stock, this is NOT taken against your profit, so your profit is still £15k, on which 21% tax is due (£3150)

You have 9 months after the year end to pay the corporation tax, so effectively you have 9 months to make profits and get money in the bank to pay the tax.

Alternatively, you could have saved £3150 in a savings account, and only invested £11850 in stock, meaning you'd have the cash to pay the tax in the bank.

This is a very simplistic example but I hope it helps.