Your trial balance is in pounds and pence. Statutory accounts are in whole pounds. Rounding every line separately does not always give totals that add up, so Tax Optimiser makes a small adjustment for you. This article explains what it does, so that a figure a pound away from your trial balance is not a surprise.
Why rounded figures do not add up
Example Fabrication Ltd has these profit and loss figures:
| Trial balance | Rounded on its own | In the accounts | |
|---|---|---|---|
| Turnover | 86,412.60 | 86,413 | 86,413 |
| Cost of raw materials and consumables | 32,407.45 | 32,407 | 32,408 |
| Staff costs | 24,318.20 | 24,318 | 24,318 |
| Other charges | 1,912.37 | 1,912 | 1,912 |
| Profit | 27,774.58 | 27,776 by adding up | 27,775 |
The real profit, 27,774.58, rounds to 27,775. But the rounded lines give 86,413 less 32,407, 24,318 and 1,912, which is 27,776. One of the two has to give.
What Tax Optimiser does
- Every line is rounded to the nearest pound.
- The profit is the trial balance profit, rounded. It is never changed to make the lines add up.
- If the lines then differ from that profit, the difference goes on the largest cost line, where a pound matters least. Here cost of raw materials becomes 32,408.
The adjustment is only ever a few pounds. It is made each time the accounts are produced; nothing is posted to your trial balance, and there is no journal to find or delete.
The balance sheet
The same thing can happen between net assets and capital and reserves.
- Small company accounts (FRS 102 Section 1A): any pound or two left over is put on the profit and loss reserve, so the balance sheet balances.
- Micro-entity accounts (FRS 105): only the profit and loss adjustment is made.
Corporation Tax
The computation starts from the same rounded profit as the accounts, so the two agree. The CT600 itself is in whole pounds with pence shown as .00.
When you need to do something
| What you see | What to do |
|---|---|
| A line in the accounts is £1 different from the trial balance | Nothing. That is the rounding described above |
| Balance Check shows a difference of 0.01 | Post a rounding journal: see Presentation journals and the Balance Check |
| Balance Check shows a larger difference | Find the missing or miscoded balance. Do not round it away |
A trial balance already in whole pounds is left alone. With no pence there is nothing to round, so no adjustment is made.
Frequently asked questions
Why is a cost in my accounts £1 more than in my trial balance?
Because the rounded lines did not add up to the rounded profit, and the difference was put on the largest cost line. The profit itself is exactly your trial balance profit to the nearest pound.
Can I turn the rounding adjustment off?
No, but a trial balance entered in whole pounds is never adjusted.
Is the adjustment tagged in the iXBRL filed with Companies House and HMRC?
Yes. The figures filed are the figures you see in the accounts, so the tagged values add up in the same way.
Does rounding change the tax I pay?
Not beyond the normal effect of working in whole pounds. The profit used is the trial balance profit rounded to the nearest pound.