Materiality of WIP adjustment

Materiality of WIP adjustment

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I am involved in a self-assessment enquiry into a self employed builder. The inspector is insisting we adjust the accounts for an (agreed) WIP value of £600 but we argue that this amount was immaterial at the time of preparing the accounts and does not need to be adjusted.
Clearly this decision could impact on other non-material potential adjustments such as one month's telephone line rental - where is the line drawn ?
Any guidance would be appreciated.
Gerry Sims

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By User deleted
15th Sep 2000 09:09

Materiality & tax investigations
I have had this 'discussion' several times with Inspectors from Inland Revenue Special Compliance Office.

They say that they do not recognise materiality. If there is a specific error, such as a payment being allowed against profits when it should not have been, then I agree that an adjustment is required whether material or not from a 'true and fair' point of view.

However, tax treatment follows the accounts in general, unless there is specific statute to say otherwise. When looking at whether to apply a particular accounting standard, then materiality is in point. If an area is immaterial and the related standard does not therefore have to be applied, then I believe that tax should follow accounts and no adjustment is necessary.

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