If you’re a company that converted from FreeAgent, the automatically posted journals relating to corporation tax won’t have been converted. The only one of these journals we do convert is where the year end has completed but the corporation tax payment due date is in the future.
QuickBooks Online’s opening balance journal may also need amending for any opening balance on the Corporation Tax Liability account. The Trial Balances should then agree.
Access the Corporation Tax page in FreeAgent to review the calculations of each year’s corporation tax.
Review the “liability” figure for any historical year with a payment due date in the past. The liability for each of these years should be entered in Xero as a journal. The “Balance Owed” at the last year end before the start date of your conversion will need entering in Xero’s Conversion Balances. This will be covered later on.
Before creating the journals in Xero, check that both a Corporation tax liability and a Corporation tax expense account exist in the Xero chart of accounts. If not, create them as necessary.
The example to the right shows how you could create the Corporation tax expense account, although customise this as you require.
Once you have the necessary accounts, add the journal to Xero. The journals page can be accessed from the Journal report or from the Accounting > Advanced page if relevant permissions are provided.
The journal date in Xero should be the same as the “Dated on” date from FreeAgent. The liability is posted to both the Corporation tax liability and Corporation tax expense accounts in Xero.
Enter a journal in Xero corresponding to the corporation tax liability of each historical year in FreeAgent where the “Payment due” date is in the past. Do this for each year within your conversion period. If there are multiple journals to enter in Xero you may find it useful to copy one journal and amend the date and amounts as necessary.
Next, amend the Xero Conversion Balances to enter the opening Corporation Tax Liability balance. This balance can found in the FreeAgent Corporation Tax report. If your conversion was for the period 01/01/2019 – 31/12/2024 the “Balance Owed” at 31/12/2018 would be the correct figure.
Access Xero’s Conversion Balances (Accounting > Advanced > Conversion Balances) and enter or amend the relevant line relating to the Corporation Tax Liability for the amount referenced in FreeAgent. The balancing entry can be posted to the retained earnings or profit & Loss account.
Note that if there’s a balance on either account in the Xero Conversion Balances, the amounts will need to be adjusted eg. If there’s no Corporation Tax Liability balance but a credit balance of £3,376 exists on Retained Eanrings then to enter a Corporation Tax Liability of £190 a new line with a credit of £190 would be entered to the Corporation Tax Liability account but the debit of £190 would be deducted from the credit of £3,376 meaning the Retained Earnings balance should be amended to £3,186.