Note: This article assumes you have already set your tax rates in LivePlan.
Looking at your Profit and Loss statement, you may notice that there are periods where, even though you've earned income, no income taxes are charged - as in the example below:
There are two possible reasons you might see zero income taxes in months where you earned income.
Negative net profit
In any period where your net profit is in the negative, LivePlan won't calculate any income tax. This is because income tax is only assessed on your profits. In a month where you earned zero profit or lost money, you won't be taxed.
In the example below, you can see the bottom line showing negative net profit, and in each of these months, zero income tax was calculated:
Recovery from a negative net profit
There will usually come a point when a business with negative profit begins showing a positive profit. But at this point, even though you are showing a profit, that profit might not be taxable immediately.
This is because your business may need a few months of positive profitability to make up all of the losses in the negative-profit months. While your business is making up those losses, you won't be charged income tax.
In the example below, the business is showing a negative net profit in Month 1 and Month 2. These months add up to a 4% loss. But then in Month 3, the business becomes profitable. The 2% profit in Month 3, however, hasn't quite made up for the earlier 4% loss. So Month 3 won't be taxed. Finally, the deficit is made up in Month 4, and so income tax begins in Month 5: