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I am very new to the whole concept of book-keeping (Read GnuCash help - that's it) at the moment and was wondering if I could get some pointers in here.

I am running a micro limited company (One director, no employees). It is pretty straight forward how to create a customer and an invoice using GnuCash, I also figured out how to use tax tables, so my liability account got updated automatically.

Last missing piece are taxable expenses. Example:

Income:Sales             £800
Assets:Checking          £1000
Assets:Equipment         £0
Liability:CorporateTax   £200

Let's say I want to buy a printer for £200. It means I need to transfer £200 from Assets:Checking to Assets:Equipment, however this should also lower my Liability:CorporateTax by £40 - I have absolutely no idea how to balance this. Should I include income account in this transaction?

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  • How is the corporate tax calculated? What's the £40 - depreciation?
    – littleadv
    Commented Aug 14, 2015 at 4:16
  • Corporate tax in UK is very straight forward for the level of my income - 20% of the profits. When buying a printer I can claim Capital allowance, deducting price of the printer from taxable profits - this is £40 less to be paid in taxes.
    – BroiSatse
    Commented Aug 14, 2015 at 8:56
  • So why don't you calculate the tax at the year-end based on the profits?
    – littleadv
    Commented Aug 14, 2015 at 9:06
  • Because not all expenses can be deducted for tax - taxable profit is not same as accounting profit. I thought it would be a good idea to know at any point the exact amount I currently owe in corporate taxes so I wouldn't spend more than I have.
    – BroiSatse
    Commented Aug 14, 2015 at 9:12
  • Tax liability shouldn't go down. Transferring cash to another asset (buying a printer) is not an expense. Depreciation is the expense. Also, will you keep another set of books (or a separate schedule for all fixed assets) for tax purposes? If so you would most likely want to book deferred taxes. Personally I would expense anything that small (to Office supplies, both book and tax) but I'm not familiar with UK tax law.
    – d_dd
    Commented Aug 14, 2015 at 15:06

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My answer would be that you typically don't accrue income taxes at the transaction level. So your printer purchase would be the cash-for-asset transfer as you describe and then at period-end (I'd recommend quarterly) you decrease your tax liability and increase your equity. Trying to keep up with income taxes at every transaction will drive you crazy.

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