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Tax refund

SystemSystem Posts: 412 admin
This discussion was created from comments split from: [UK] Set up Wave to track VAT.
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  • eve1985eve1985 Member Posts: 7

    Hi, I have recently completed my UK self assessment tax return, and made a payment to the government for the amount owed. This payment is now showing up in my transactions - how do I properly categorise this payment? I don't pay VAT or have employees, and work on the acrual basis. I've not done this before as it's my first tax return, so easy to follow step by step instructions as to what to do would be appreciated!
    Thanks!

  • ConnorMConnorM Member Posts: 1,229 ✭✭✭

    Hey @eve1985! I'm thinking that the best bet here would be for you to reach out to a local tax professional in order to figure out best practice for accounting for that income tax payment. However, my best guess in Wave would be to create a liability account in order to have this income tax payment accounted for!

  • eve1985eve1985 Member Posts: 7

    Thanks Connor! I was hoping to avoid going to an accountant just to categorise that one payment, so if anyone else knows anything about this, any advice would be much appreciated - I'm sure every small business in the UK has to do this too when they pay their tax, so I'm hoping someone out there must know what to do!

  • eve1985eve1985 Member Posts: 7

    Thanks ConnorM - however I'm not VAT registered, so it's just my annual income tax payment that I've made to the government that I need to categorise (I've already filed my self assessment tax return and made my payment for the amount owed for the year, which is now showing as an outgoing transaction in Wave). How do I categorise the payment to the government or set up the tax account for this please?

  • ConnorMConnorM Member Posts: 1,229 ✭✭✭

    Hey @eve1985! I'm thinking that your best bet here is just to categorize this expense as 'Sales Tax Payment to Government', otherwise you'd need to navigate to Accounting > Chart of Accounts, add in a liability account for your Income Tax payments, and navigate back to the transaction to categorize it into that account.

  • eve1985eve1985 Member Posts: 7

    Thanks Connor! For some reason when I go to add a liability account for the income tax payments I'm not able to add one under sales taxes as I can for the other categories (see attached screenshot) - is there another heading I should be putting the account under?

    The only way I can find to add a sales tax is by going to settings and adding one there, but then it requires me to put a percentage rate, which I don't have as the income tax calculation is a little more complicated than that! It also asks if the tax is recoverable and if it's a compound tax which I don't know about I'm afraid - it all seems a bit complicated just to categorise a single yearly payment, so any advice would be much appreciated!

  • ConnorMConnorM Member Posts: 1,229 ✭✭✭

    Hey @eve1985! Totally fair, thanks for following up with me here. As far as how to track this as a liability, and what the correct Chart of Accounts heading to use, that's actually not something that we can really advise on, as it's starting to get into the territory of an accountant. I'm thinking you might want to reach out to a CPA just to get that clarified!

  • eve1985eve1985 Member Posts: 7

    No problems, and thanks for your help Connor. If anyone else can help, please let me know, as I'm sure every other business in the UK must have to categorise their yearly income tax payment too. Could you move my post back to the separate post it was in originally please, as the VAT advice above doesn't apply to this situation? Thanks again, Eve

  • SandyLSandyL Member Posts: 35 ✭✭

    Hi from Canada - this is a three step process that I just tried: set up a liability account, move money into it from your bank account, then pay taxes using the new account as an expense category.

    1. Under Accounting > Chart of Accounts> Liabilities and Credit Cards > Other Short Term Liability, I set up an account and called it Federal Income Taxes.

    2 I then went to Accounting > Transactions > More > Add Journal Transaction and moved money from my bank account to the new Federal Income Taxes account. Now the money shows up in my Balance Sheet as a Short Term Liability and my operational expenses are not impacted.

    FYI - The new account shows up separately in the list of accounts under the Transactions heading, and the amount I 'transferred' there is listed under that account.

    1. To pay the taxes, I moved money from my business account to the new Federal Taxes account by: Accounting > Transactions > Add expense. Enter a Withdrawal from bank account and select Category: (new account) Federal Income Taxes. (this was near the bottom of the list under Liability Accounts)

    This moved the payment out of my bank account and deducted it from the short term liability account. No expense showed up under Operational Expenses and the Short Term Liability was reduced accordingly in my Balance Sheet.

    Seems to work!

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