zain said:
If so and you have experience with accounts; profit/loss and balance sheet.
It concerns tax:
- Tax paid on your profit (after costs, etc), does that profit get carried on to next year and so taxable again? As far as I know it will be under cash next year, right?
If so, doesnt that mean your money is just going down and down by the year? What methods are there to go around this?
Thanks in advance
No, it doesn't.
At a simple level, you have a financial year (maybe June 1st to May 31st), and you pay tax on the profit for that year, in a given tax year. At the start of the year, you have zero profit. In the next tax year, you'd be paying tax on profit made in the following financial year.
Bear in mind that the P&L shows the profit
for the period, while the balance sheet shows the overall state of the company at a given point in time. The profit at the end of the year (less tax) goes onto the balance sheet. You'd then make the decision about how much of the profit to distribute to shareholders as dividends, and how much to retain for ongoing operations, expansion, investment, etc.
There is, however, an element of crossover between P&L and capital (balance sheet) items. For instance, if you buy a car, the cash going out (or loan) is a liability and goes on the balance sheet. The car itself is an asset and also goes on the balance sheet. Neither are profit/loss items. But the car depreciates, and that depreciation is a charge on profits, so gets deducted from profit before tax is calculated. There are a number of complications like this, but the simple answer to your question is no, you don't pay tax on profits more than once.
If, however, you invested profits in an asset that appreciated (say, property), then you could be liable for tax (capital gains tax) on the
gain made on the property when you dispose of it, despite having bought the asset with profit that was taxed.
But you certainly only pay income tax (corporation tax for companies) on profit made, once.
