Tax Estimates for Limited Companies

Intro
Our sole trader product has had a tax estimate that works out your personal tax liability as a sole trader. But for limited companies, we don’t have this yet.

We’d like to add a corporation tax estimate for limited companies.

Our approach
Corporation tax is calculated as 19% on your company’s profit. This is due to drop to 17% in April 2020. The calculation works based on your financial year.

If your financial year goes over the period where the rate changes, then your profits are spread evenly over the year, and the relevant rates are applied.

We’ll present the tax estimate in a Tax tab in the app, along with details of the calculation.

Our questions
Does your financial year run for 12 months each year, or do you ever change it?
How do you keep track of what you owe for corporation tax, do you set it aside?
And what about the personal tax you owe as a Director of your company, how do you handle that?

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My financial year runs for 12 months each year. I see no reason to change it.

Keeping track of what I owe is difficult. I use a spreadsheet, but tax estimates for Corporation Tax will be very useful, especially if they are running estimates. That would help me set aside the correct amount as I go. Maybe you could even do a Monzo style pot which automatically sets aside the (roughly) correct amount based on rolling income and expenses.

As for personal tax – I leave quite a lot of money in the company so my dividend tax is low. And I am careful to always have a personal cash fund available. BUT it is not something I keep track of other than in the back of my mind, and thus is a little stressful around April.

It would be great to have an “at a glance” personal tax estimate within the Coconut app (with caveats / assumptions displayed if necessary)

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Tax year runs for 12 months, don’t change it or plan to

Tracking corporation tax, always manage 19% of revenue in reserves, but my costs are low so its easier for me than others

Manage personal via personal bank accounts. Just chuck some into a savings account as I go

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Thanks @graeme. Check out this thread for saving for tax.

Next step I think would be for us to show a running total of your dividends, and then we could try to do an estimate of your personal tax based on dividends plus what you pay through payroll. We’ll create a separate thread for that in due course.

2 Likes

Thanks @alsopj, makes sense to capture the full 19% when your costs are low, then you get a bit of spending money left over :slight_smile:

Thanks for the info on how you manage the personal side, this seems like it’s a bit trickier for owners of limited companies.

As of late last week, this is now live! https://getcoconut.com/2020/04/limited-company-tax-reports/

Head into the app to check it out (make sure you’ve got the latest app update) and let us know what you think :pray:

This needs updating on https://trello.com/c/4uReDyxx/137-corporation-tax-estimates-for-limited-companies :tada: :blush:

1 Like

Thanks for spotting Karl.

We’ve now updated this to Live!

I’ve just completed my first end of year company accounts for my Ltd company using Coconut and I found a couple of items related to the Ltd account tax calculation which could be improved.

The tax calculator accounts for invoices on a cash basis not an accruals basis, so my tax estimate was incorrect since one of my invoices fell into my new tax year as it had not yet been paid. This would also be the case for any purchases with a later payment date.

My biggest pain point however is dividends calculations, I see a big opportunity for Coconut to solve this problem. Coconut already has the data to work out an estimated dividends and if it could also combine payout data to show amount remaining this would be super useful.

Is this something that’s already being worked on by any chance?

It is certainly on our radar, yes. Elements of it will hopefully be put in place soon as part of our Saving for Tax work, but the real improvement will be seen when we establish the concept of ‘retained earnings’ within the product. This is something that we currently don’t ask users when they set up their tax profile, and we need to to be able to accurately advise around dividend payments

1 Like