How your figures are shared between two Corporation Tax returns

Short version. When your first year is longer than 12 months it files as two Corporation Tax returns, and we share each income and cost total between them by day count. That is HMRC’s normal approach for a long period. The tax result is normally identical either way, because a loss in the first return carries into the second automatically. If you would still prefer each amount to sit in the return whose dates cover the transaction, you can do that too, by making three separate submissions instead of one combined filing.

1. Why there are two returns

A single Corporation Tax return can only cover up to 12 months, so a first year of, say, 12 months and 3 weeks files as one return for the first 12 months and a second return for the remaining days. Companies House still receives a single set of accounts covering the whole period. The full story is in Your first year: filing when your accounting period is over 12 months.

2. How the sharing works

You enter one set of figures for the whole period, and we divide each total between the two returns in proportion to their length in days. We do not ask for the date of each transaction, so the split follows the calendar rather than your bank statement.

For example, a first year of 387 days splits into a 365-day return and a 22-day return. A £150 software cost paid during the year is then shared like this:

This is not a shortcut of ours. For a long period of accounts, HMRC’s normal approach is to apportion the overall profit or loss between the Corporation Tax periods on a time basis. HMRC sets this out in its Company Taxation Manual at CTM01405. Other approaches are recognised where time apportionment would give an unfair result, so placing each amount by its transaction date is also acceptable. Day count is the standard method, and it is the one we apply.

3. Why the tax result is usually the same

For most companies the choice of method changes nothing except which return shows the amounts. In the example above, suppose the £150 cost is the company’s only entry and there is no income. Day count gives Return 1 a £141 loss and Return 2 a £9 loss. Placing by transaction date gives Return 1 nothing and Return 2 a £150 loss. Either way:

• neither return has any Corporation Tax to pay, and
• the loss available to carry forward is £150, because the two returns are consecutive accounting periods of the same company and a loss in the first carries into the second automatically.

The two returns always add back up to your full-period totals, so nothing is taxed twice and nothing is lost. The split can matter where one return would show a taxable profit while the other shows a loss. If your figures look like that and you are unsure, contact us before you file.

4. Capital allowances are different

Day counting is the wrong way to place a capital allowance, because an allowance belongs to the return covering the day you bought the asset. That is why capital allowances are the one part of a long first year we ask you to confirm rather than assume. See capital allowances in a long first year.

5. Placing amounts by transaction date yourself

If you would prefer each return to carry the amounts actually dated inside its period, you can achieve that with three separate submissions instead of one combined filing. Your subscription includes unlimited submissions, so this costs nothing extra.

1. Accounts only. Select Companies House as the only filing target, with the full accounts period. This files your single set of accounts.
2. First tax return. Select HMRC as the only filing target, with the first 12 months as the accounting period, entering only the income and costs dated inside it. If nothing happened in those months, that is a nil return.
3. Second tax return. Select HMRC as the only filing target, with the remaining days as the accounting period, entering the income and costs dated inside it.

Choosing a single filing target at the first question is described in filing to HMRC, Companies House, or both. One caution: if you take this route, do not also submit a combined filing for the full period, because HMRC would then receive duplicate returns. The two accounting periods must match the ones HMRC expects, which are normally the first 12 months from your start date and then the remainder.

This article is general guidance, not tax advice. If your situation involves more than a straightforward split, for example significant profits in one part of the year, speak to an accountant or contact us before filing.