corporation tax computation

starface

hi all,

I'm in the middle of revising for a college tax exams. I doing out some corporation tax computations and I'm just wondering can anyone tell me why a telephone bill which is unpaid @ time of accounts being done up is "added back" to net profit? I'm sure it's a simple explanation but I haven't cme across it before and my lecturer hasn't replied to my email.

Thanks

Cookie_Monster

tax is based on an actual expenditure/revenue basis, not accruals and prepayments. so you haven't actually incurred the expense yet from a tax point of view and don't until you pay it.

starface

Pretty straight forward really.... oops on my part. My lectured would be ashamed, actually maybe that's why she didn't reply.

Thanks you for your reply.

foundation10

I would suggest that you seek clarification as I would not add back costs simply because they remain unpaid at the end of year. Corporation tax is levied on the profits of a company for any given period and in determining profits you will need to include costs which have been incurred in that specific period. This does not necessarily mean that the costs have been paid, they can be acrrued or included within creditors. What I would think the addback relates to is the private usage element of the telephone. This is my 2c worth!

AugustusMinimus

Cookie_Monster wrote: »

tax is based on an actual expenditure/revenue basis, not accruals and prepayments. so you haven't actually incurred the expense yet from a tax point of view and don't until you pay it.

Simply not true.

Case I is always calculated on the accruals basis.

Case IV Income is on a receipt basis.

namenotavailablE

As per previous post, Case I is most definitely NOT computed on a 'cash receipts/payments' basis.

If the telephone addback was for non-business purposes it would be a correct addback. However, if it was added back simply because it wasn't paid that is a fundamental error (and I sincerely hope that it wasn't the method shown by your lecturer).