Accruals and Prepayments & Tax Returns

Accruals and Prepayments & Tax Returns

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I have long prepared end-of-year accounts for other people and so I am used to working with accruals and prepayments.  However, I now have a very uncomplicated tax return to fill in and I wondered how they are entered on there please as I have a receipt for expenses that have been paid in the 2014/15 tax year but they actually belong to the 2015/16 tax year and will be entered into the accounts for that year.  I know you can use cash basis accounting but I would prefer to know how to do it if I decide to follow the accruals method.

Thanks in advance for any help given.

Replies (13)

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By Accounting-rookie
14th Dec 2015 23:30

50/50
So you do know or you don't know how to accrue/prepay?!

Thanks (1)
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By CelticStar
14th Dec 2015 23:54

I know how to do accruals and prepayments in end-of-year accounts to pass on to the accountant but I don't submit tax returns for a living apart from my own which are very basic.  Perhaps I have not explained myself very clearly.  My concern is whether HMRC only allow you to submit expenses for which you have receipts in that tax year or whether the same method applies as in end-of-year accounts - ie you deduct the expense in the year in which it is used.  I know there are differences in the way things are accounted for on tax returns - capital allowances rather than depreciation etc - so thought this was a reasonable query. I came here to learn something as I am interested.

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By penelope pitstop
15th Dec 2015 08:47

Use accounts basis for traders

If completing tax return for trader use strict accounts aka accruals basis if possible.

HMRC like strict accounts basis for most traders.

Income tax/Class 4 NIC will be charged on net profit in the p&l account (i & e a/c) as adjusted for income tax e.g. private use add backs and depreciation add backs less capital allowances etc

So income and expenses will be ascertained using accruals and prepayments where amounts are material.

If a balance sheet has been prepared enter the balance sheet figures on the tax return. If no balance sheet then forget about it.

For property income use either cash basis if rents are up to £15k per annum or accruals basis. For rents in excess of £15k per annum use accruals basis only.

Thanks (2)
Replying to frankfx:
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By CelticStar
15th Dec 2015 01:43

Thank you

penelope pitstop wrote:

If completing tax return for trader use strict accounts aka accruals basis if possible.

HMRC like strict accounts basis for most traders.

Income tax/Class 4 NIC will be charged on net profit in the p&l account (i & e a/c) as adjusted for income tax e.g. private use add backs and depreciation add backs less capital allowances etc

So income and expenses will be ascertained using accruals and prepayments where amounts are material.

If a balance sheet has been prepared enter the balance sheet figures on the tax return. If no balance sheet then forget about it.

For property income use either cash basis if rents are up to £15k per annum or accruals basis. For rents in excess of £15k per annuam use accruals basis only.

 

That is hugely helpful, many thanks for taking the time to write all that, I really appreciate it.

Thanks (1)
Replying to frankfx:
RLI
By lionofludesch
15th Dec 2015 08:37

Not entirely

penelope pitstop wrote:

If a balance sheet has been prepared enter the balance sheet figures on the tax return. If no balance sheet then forget about it..

Don't forget it completely.  You'll need to know what you accrued and prepaid when you do next year's accounts.

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Replying to frankfx:
By JCresswellTax
15th Dec 2015 09:08

Rental income of £15k

penelope pitstop wrote:

If completing tax return for trader use strict accounts aka accruals basis if possible.

HMRC like strict accounts basis for most traders.

Income tax/Class 4 NIC will be charged on net profit in the p&l account (i & e a/c) as adjusted for income tax e.g. private use add backs and depreciation add backs less capital allowances etc

So income and expenses will be ascertained using accruals and prepayments where amounts are material.

If a balance sheet has been prepared enter the balance sheet figures on the tax return. If no balance sheet then forget about it.

For property income use either cash basis if rents are up to £15k per annum or accruals basis. For rents in excess of £15k per annum use accruals basis only.

Is this a policy of yours or a policy of HMRC?

Also is £15k rent received or profits?

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Replying to Tax Dragon:
RLI
By lionofludesch
15th Dec 2015 09:54

HMRC

JCresswellTax wrote:

Is this a policy of yours or a policy of HMRC?

Also is £15k rent received or profits?

HMRC - PIM 1101.  Scroll down about a foot.

http://www.hmrc.gov.uk/manuals/pimmanual/PIM1101.htm

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By JCresswellTax
15th Dec 2015 11:23

Thanks

It never fails to amaze me how much I don't know!

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By cheekychappy
15th Dec 2015 11:29

Your football knowledge isn't much better. I've just seen that you support AV. :-)

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By JCresswellTax
17th Dec 2015 10:17

Yeah

It was in good in 82, it's been downhill ever since :(

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Replying to atleastisoundknowledgable...:
paddle steamer
By DJKL
17th Dec 2015 10:29

The delayed effect of Martin O'Neil

JCresswellTax wrote:

It was in good in 82, it's been downhill ever since :(

Aha, our relegation companions.

We (the family) support Sunderland (can drive from Edinburgh). Ever noticed what happens to clubs a few years after Martin leaves? Still, we have Big Sam so must now be immune.

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By JCresswellTax
18th Dec 2015 09:45

Yes actually DJKL

I have long said this!

Martin O'Neil has done well in his career but whenever he leaves a club, they are a complete and utter mess!

Needless to say he is not my favourite person!

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RLI
By lionofludesch
18th Dec 2015 10:25

Connection

Is that not why he leaves ?

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