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CT61 and accrued interest

CT61 and accrued interest

New client took out a personal mortgage to introduce to company to purchase a new factory.

Asset recognised on balance sheet with corresponding amount in directors current account.

Historically the accountant has debited the annual interest charge and credited the annual mortgage interest to accruals.

Repayments of the mortgage have been classed as drawings with the interest accrued for seperately.

Technically as it has been accrued for seperately and not credited to the directors current account then the interest hasn't been paid? And this would explain why no ct61s have been declared?

Is any one able to confirm that the above is viable? If that's the case would the ct61 come into effect when the accrued interest is charge to the current account and effectively paid? Also would the director then have the right to offset the mortgage interest from the previous years against the interest declared on their personal tax return?
Many thanks

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By Ruddles
01st Mar 2016 09:50

A few issues

CT61s are not in point, because no interest has been paid - yet.

The director should already have been claiming relief for the interest paid by him (provided the company is a trading company, which appears to be the case) - in any event. no, he cannot offset interest paid in previous years against interest received now.

Has the company claimed a deduction for the interest charged to the P&L? If so, you may want to re-consider that.

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By PALacc
01st Mar 2016 09:53

Thank you. It seems to be that in the 2013 and 2014 accounts interest was deducted in the p&l account and then accrued so not effectively paid.

In the 2014 and 2015 tax return no claim was made for the interest in the tax returns as the client had no other taxable income which would offset against.

So I am pondering the best way to now deal with this. I could redo the 2013 and 14 accounts and credit the current account resulting in a ct61 being due and then redo the personal tax returns to offset the interest on those years? Do you think that would be the best course of action?

Then going forward credit the current account each year following the ct61 rules year on year?

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By Ruddles
01st Mar 2016 10:16

The best course of action

Is to tell your client that his previous accountant screwed up. "Re-doing" the accounts and tax returns? Not something that I would want to consider doing.

But you didn't answer my last question.

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By PALacc
01st Mar 2016 10:25

Interest has been debited to p&l and accrued the same amount with no amount for the tax deduction.

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By Ruddles
01st Mar 2016 10:42

You've missed my point

So I'll try and make it clearer.

You say that the interest has been debited to the P&L (which is of course correct). The question is whether that interest charge was added back when preparing the corporation tax computations and returns. If it wasn't, you've got some thinking to do.

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By PALacc
01st Mar 2016 10:55

Sorry my misunderstanding no it wasn't added back so the company has had tax relief on it

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By PALacc
01st Mar 2016 11:06

I think the simplest solution would be to redo the accounts crediting the interest and then the tax due to be withheld - the client submit the historic ct61s and then declare the interest on the anended personal tax returns along with the actual interest as a deduction on the tax return. The net tax due should be nil so interest/penalties should be low/

It will take time to do but would that be the the course of action?

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By Ruddles
01st Mar 2016 12:53

It's certainly A course of action

But it's not the one that I would recommend. Good luck in arguing the "net tax due" point.

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By PALacc
01st Mar 2016 13:08

What course would you take? All help and comments are appreciated

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By Ruddles
01st Mar 2016 13:59

See my comment at 10:16

Perhaps advising the previous adviser to dust off his PI policy.

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By PALacc
01st Mar 2016 14:15

Ha good point but doesn't help me move forward

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By Ruddles
01st Mar 2016 15:06

Not sure what you want

You asked for a recommended course of action. I've given it to you. You seem to be looking for an endorsement of your proposed course of action, but you won't get that from me. If that appears to be unhelpful, so be it. I'm all for helping clients deal with their problems, but in this practice that does not extend to re-writing accounts and tax returns simply to cover up the cock[***]-ups of the previous agent.

The best way to move forward in my opinion is to leave the past where it belongs and to ensure that things are done properly in the future. If the client has overpaid tax as a consequence of the previous agent's shortcomings there is a way to deal with that - but it's not your problem.

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By PALacc
01st Mar 2016 16:19

Thanks Ruddles - I appreciate your comments

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