A client is currently the subject of an HMRC enquiry into his self employed tax return. The, only, query raised by the inspector is that "I am concerned some of the sales income is not recognised in the correct year".
The clients year end is 31st December which happens to coincide with his busiest period (Oct - Dec) which results in some invoices for this period not being raised until January or February (i.e. the next financial year). In general the client is fairly late in invoicing and although I have pointed out it is not good business practice his comment was that once you have got over the initial delay it is just like being paid normally.
The client has drawn up a list to show that for many years he has regularly invoiced one or two months after the service has been provided, so he has not tried to just delay the tax in the year in question.
Is the inspector's concern based on law/rules/regulation that I do not know about and if that is the case should accountants and the like be sending out accounts on a monthly, rather than yearly basis?
Graham Lingley
Replies (5)
Please login or register to join the discussion.
Where have you been
How does GL prepare his own accounts?
Were the numerous articles in 2006 and 2007 on UITF 40 binned as 'not relevant' ?
The corner stone of all accounting is ' income recognition' and this concept should be fully understood before taking on any client work, it is surely too late to learn this fundamental rule after the event.
With this new found knowlege of accounting principles in mind will GL be correcting accounts and returns for his entire client base? The possibilities , one might say, are endless.
Accruals principle
Seems to me that the Inspector has a grasp of GAAP - why doesn't the querier? Hopefully both understand the Ahmedabad principle