Double entry for CT unpaid, but reduction in value required

Double entry for CT unpaid, but reduction in...

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Good evening

I picture a lot of guffawing with laughter at this question but I am seriously confused.

I have a client who was due to pay £1300 in CT at the end of his last financial year. It is still showing as a creditor in the current year accounts, and he has made a loss. I have worked out that the new liability is £120 so I clearly debit creditors £1180, but where on earth does the other side go? 

Its easy if you know the answer I am sure!

No mocking please I am ashamed enough :)

Many thanks for your kinds responses!

Replies (13)

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By Tonykelly
20th Jun 2013 21:47

credit P&L account

credit P&L a/c CT prior year

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By LeighM
20th Jun 2013 22:08

Thanks Tony. I was wondering if it would be a prior year adjustment. My only thought was that the actual tax due in the prior year WAS £1300, so why would it be stated as less than this...but you obviously know what you are talking about. I will also put in a prior year adjustment note I guess? Would my £1300 be considered an estimate - so therefore a change in estimation?

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Replying to leshoward:
By johngroganjga
21st Jun 2013 08:10

No PYA note

LeighM wrote:

I will also put in a prior year adjustment note I guess?

You don't need a prior year adjustment note.  You just need to analyse the current year tax charge (or credit) into its current / prior year components.  This is dealt with within the tax charge note, not in a separate note.

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By johngroganjga
20th Jun 2013 23:39

The whole of the change is credited to P&L. That part that results from the carry back of this year's loss is current year CT. The remainder, if any, will be the difference between last year's estimate and the actual liability for last year before taking account of the loss carried back. That part is the adjustment in respect of prior years in the P&L charge.

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Replying to Ronald2017:
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By LeighM
21st Jun 2013 12:42

Adjusment

I think the fog may be lifting. Just to clarify (I know its probably simple to you so bear with me please ;))

1. "The whole of the change is credited to the P&L" - the PY tax was 1300, and is now 120 so I credit the P&L (tax charge CY) £1180

2. I then debit the creditors £1180 (I am happy with this side of the transaction).

3. Last years liability was correctly estimated so no prior year adjustments to do.

Many thanks for all your kind responses too. Its great to know that professionals are willing to give their time to help those trying to follow in their footsteps.

 

 

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By petersaxton
21st Jun 2013 07:13

No prior year adjustment

Why should there be a prior year adjustment?

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Replying to Tickers:
By johngroganjga
21st Jun 2013 07:36

I don't think there should be Peter. My post explains what I believe to be the correct treatment.

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By petersaxton
21st Jun 2013 09:33

John

I wasn't suggesting you did think that, John, but Leigh seems to think that.

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By johngroganjga
21st Jun 2013 09:40

I know.  That is why I have

I know.  That is why I have been helping to correct his misunderstanding.

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By petersaxton
21st Jun 2013 14:38

No No No

Why are you doing the net charge for two years in one years accounts?

You only have to enter one tax charge/credit in each years P&L account. 

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Replying to stepurhan:
By johngroganjga
21st Jun 2013 14:54

Mixed up

petersaxton wrote:

Why are you doing the net charge for two years in one years accounts?

You only have to enter one tax charge/credit in each years P&L account. 

Think you misunderstand Peter.

Tax charge in last year's accounts was £1,300.  That was correct at the time.

In this year's accounts we have a loss which is being carried back (either to generate a repayment of £1,180 out of the £1,300 that has been paid, or to reduce the unpaid amount from £1,300 to £120 - it doesn't matter which).

The P & L entry to reflect this is a credit in the CY line in the tax charge.

Perfect in every detail and beautiful in its simplicity.  What's wrong with what Leigh is proposing to do?

I think you may be getting mixed up.  "The net charge for two years" is £120.  This is not being shown in "one years accounts" but two.  Namely £1,300 last year and £1,180 credit this year.

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By petersaxton
21st Jun 2013 15:29

I can see that now

It's a very weird way to explain things. I would have said what the charge or refund was each year rather than the net balance outstanding.

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By LeighM
21st Jun 2013 15:45

Thanks again. I think we are all singing from the same hymn sheet. It makes perfect sense now and seems very logical. 

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