How is corporate tax liability calculated?

Discussion in 'Accounts & Finance' started by Dave0108, Aug 23, 2017.

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  1. Dave0108

    Dave0108 UKBF Contributor Free Member

    52 1
    For a limited company in following simplified scenario:
    • Year start - £100 cash in bank - £0 stock on hand
    • Buy £100 stock
    • Sell this stock for £200
    • Expenses incurred during selling of stock £50
    • Cash in bank is now £200 - £50 = £150
    • Profit £200 - £100 - £50 = £50
    • Remaining £150 used to buy stock
    • End of year £0 cash in bank - £150 stock on hand
    Would tax liability be:
    • £50 * 0.2 = £10 ?
    • £0 * 0.2 = £0 ?
    In other words, will spending cash on stock reduce corporate tax liability or it will not, because stock is considered to be the same as cash?
     
    Last edited: Aug 23, 2017
    Posted: Aug 23, 2017 By: Dave0108 Member since: Oct 16, 2015
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  2. STDFR33

    STDFR33 UKBF Big Shot Free Member

    4,528 1,209
    You thinking is a little off.

    Stock not sold is a current asset, and held on the balance sheet. It doesn't hit your profit and loss, and therefore doesn't reduce accounting / taxable profits.

    The taxable profits would therefore be £50 in the above example.
     
    Posted: Aug 23, 2017 By: STDFR33 Member since: Aug 7, 2016
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  3. nick34785

    nick34785 UKBF Regular Free Member

    132 11
    It will not.
     
    Posted: Aug 24, 2017 By: nick34785 Member since: May 25, 2014
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  4. pentel

    pentel UKBF Regular Free Member

    481 86
    Stock should be valued at the lower of cost and net realisable.

    It would be most unusual not to have some stock which could be valued below cost ( short dated, customer returns, end of line etc.) so some saving on corporation tax can be made there.
     
    Posted: Aug 24, 2017 By: pentel Member since: Mar 12, 2011
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  5. MyAccountantOnline

    MyAccountantOnline UKBF Legend Full Member

    13,305 2,500
    It'll depend on the accounting period as its now 19%.

    No because the value of closing stock is deducted from the amount spent on stock.
     
    Posted: Aug 24, 2017 By: MyAccountantOnline Member since: Sep 24, 2008
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