6 Taxation Liabilities and Assets
6.1 Taxation is treated in exactly the same way as other economic transactions affecting a set of accounts: the generation of profits creates the obligation to make payments of corporation tax. The profit and loss account is therefore charged with this cost, and a liability is created on the balance sheet for the amount that is payable. If a loss arises, this creates an ability to recover some of the tax that was charged in the previous year; therefore there is a credit to the profit and loss account, and an asset is recognised on the balance sheet for the tax that is repayable by HMRC.
6.2 The balance sheet of a company (and the consolidated balance sheet of a group) is likely to include various balances in respect of taxation, including the following:
6.2.1 a liability for the corporation tax payable on the profits for the year in question. For a company which is not charged at the full rate of corporation tax the date of payment of this tax is normally 9 months and one day after the end of the year. However, the cost is recognised in the financial statements as the liability has arisen by the year end. The liability was triggered by the Company generating taxable profits in the period; 6.2.2 a liability for the final two instalment payments in respect of corporation tax payable under the instalment payments regime: under the instalment payments regime (broadly speaking, applicable to companies or groups with taxable profits of more than £1,500,000) the corporation tax for a year is payable in four instalments: 6 months and 13 days after the start of the accounting period and three monthly thereafter. There will therefore be a liability for the instalments payable 13 days after the year end and 3 months and 14 days after the year end;
6.2.3 a liability for the PAYE and NICs relating to the payroll for the final month of the year, this normally being payable on the 19th day of the following month;
6.2.4 a liability for VAT payable, assuming that the Company or Group has taxable outputs. The timing of this payment will be dependant upon the VAT quarter date, which varies from company to company;
6.2.5 Section 419 tax, that is taxation payable in respect of loans made to participators of close companies;
6.2.6 Construction Industry Scheme tax, if the company is in the construction industry and has deducted tax from payments to subcontractors;
6.2.7 tax payable under the form CT61 regime in respect of tax deducted from interest payments;
6.2.8 a provision for deferred tax. This matter is addressed in chapter 3.
6.3 the balance sheet is also likely to show various tax assets, including the following:
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