One of the goals of Fathom forecasting is to allow you to create a new report, for a new period, and have the forecast data calculate automatically from that new period without having to make manual adjustments to the forecast (e.g. adjusting opening positions).
This allows you to schedule a report, and have it roll forward and calculate quickly and easily each time. This is great for a time-stressed business user who can get updated valuable information from Fathom automatically. It is also extremely beneficial for any accountant or advisor wanting to deliver the value of updated forecast information at scale to large numbers of clients.
To help you do this, Fathom can auto adjust your tax liability accounts to apply the tax formula backwards (into your actuals date range) to a date of your choosing.
This auto-adjustment can be set up during the tax settings section of the onboarding process or in the global tax settings (‘Cog/Gear’ icon in forecast -> Tax) for any tax expense accounts you’ve set up.
To do this, simply select the ‘Auto-adjust tax liability from’ check box and choose a date from the drop down list. Fathom will then apply the relevant tax formula and payment schedule (that you have set up) backwards to this date. This automatic calculation is then posted to your ‘Adjustments’ area in ‘Company Settings > Step 1: Update Data > Adjustments’.
If you would like to turn off auto adjustments for income tax:
- Go to your Fathom 'Forecast'
- Click the 'Cog/Gear' icon in the lower left of the screen to open the 'Forecast Settings'
- Select 'Tax' at the top of the settings menu
- Scroll down to the 'Tax expense accounts' section
- Click on the tax and uncheck the 'Auto-adjust tax liability' checkbox at the bottom of the menu. You can do this separately for each tax listed in the 'Tax expense accounts' section.
What if I make extra payments on my tax?
If you create another journal entry in your Fathom forecast that impacts your tax expense account, Fathom will automatically reduce all auto-adjustment tax payments to account for this.
Why is this important?
The key concern with this approach is that a forecast is only as good as the opening position. For most accounts, we can assume the opening position is stated clearly in the accounting data; however, for Income tax, the expense is typically added to the accounting data only at the end of the financial year, when preparing the tax returns.
Fathom’s ‘Inferred tax liability’ logic helps you by:
- Using your forecast’s configured tax settings to
- Automatically create opening journal adjustments, allowing
- A better statement of opening tax liability positions which are not yet included in the accounting data
- Without having to adjust anything manually in Fathom
Forecasts can then spin from any starting position and a new set of opening tax liability adjustments will be dynamically created, specific for that particular period, based on the tax settings the user has configured.
❗Note: If you do not want to use Fathom’s ‘Inferred tax liability’ logic, then you can leave the checkbox unchecked and make manual adjustments, if necessary, in the ‘Company Settings > ‘Step 1 - Update Data’ > ‘Adjustments’ section. This will, of course, make the process less automated.