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Hard evidence of hardship from UITF 40

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11th Oct 2005
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Around 25% of accountancy firms will face a tax bill that is more than 50% higher than normal when they adopt UITF 40, says the Consultative Committee of Accountancy Bodies (CCAB).

A further 17% of firms will face a bill that is more than double their normal tax liability. The figures are based on research conducted over the summer by CCAB bodies, to support the request for a ten-year spreading relief to help counter likely hardship arising from the adoption of UITF 40.

As reported previously on AccountingWEB, the CCAB originally made its request for a spreading relief in June. At the time Paymaster General Dawn Primarolo asked for evidence of likely hardship resulting from Abstract 40. Since then, the CCAB has been working with the Law Society to gather data, which has now been sent to Primarolo.

In the covering letter sent with the research findings, CCAB chairman Ian Morris and Law Society president Kevin Martin point out that a typical high street business may not be able to fund the additional tax charge from the bank and may therefore go under. Firms hit especially hard will be those run by the proprietors, who didn't have to put a value on their own time under the previous accounting standards, and who valued WIP in line with the guidance note agreed between the accountancy profession and the then Inland Revenue in November 1998.

"Given the data and these concerns, we maintain that a ten-year spreading would be reasonable and should alleviate most of the financial hardship that will result," say Morris and Martin. "We understand and appreciate that you would prefer any spreading to be over a shorter period. Nevertheless, we are concerned that many businesses will struggle even with a ten-year spreading and that anything shorter may result in businesses folding."

The letter goes on to say that small firms with less than 10 partners or proprietors will be hit proportionately harder than large concerns, but given that large firms will also face some big adjustments, there should be no restriction on the size of the firm if spreading relief is given.

The data submitted to the Paymaster General was based on research among members of the Institute of Chartered Accountants of England & Wales (ICAEW), the Institute of Chartered Accountants of Scotland (ICAS) and the Association of Chartered Certified Accountants (ACCA). Evidence was also collected from Law Society members, but wasn't included in the submitted data for technical reasons. However, it did support the research findings. The CCAB stressed that many other types of business are likely to be affected in a similar way - from estate agents and IT consultants to doctors and surveyors.

In a statement announcing the findings, Ian Morris said: "Discussions have continued in a constructive manner and we are planning to have a further meeting soon with representatives of HM Revenue and Customs and HM Treasury to discuss the results. We will continue to press the case for a spreading relief to be made available to all businesses affected by UITF Abstract 40, but as yet we do not know whether a relief will be made available. We will provide a further update in due course."

The full text of the letter and the research data can be downloaded from the ICAEW website.

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    Replies (3)

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    avatar
    By brian.mercer
    18th Oct 2005 14:59

    What a surprise!
    I cannot understand how the Accounting profession has allowed itself to get into this position re "unbilled work in progress". It does not say much for the leadership, and this is a bad sign for the proposed CIPFA merger. Those at the top will never work for the grass roots membership.
    On 11 May I attempted to criticise the following quote from UITF Abstract 40: "as a matter of principle there is no difference between the accounting required for long-term contracts and other contracts for services". That statement, to me, is the cause of ALL the trouble. Please will someone - the President? - kindly advise the person(s) who made that erroneous statement to correct it, and all the consequences which have issued from it?

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    avatar
    By Peterjet
    12th Oct 2005 13:29

    Up lift in turnover, More TAX ; GB/DP Happy and TB in the Busine
    That is what the big 4 did and it is for this primary reason that the Government/Inland Revenue together with KPMG do not understand the concept of how to run a small businesses. Lets face it neither the Labour Govt, KPMG or the Inland Revenue understand how the small business is run let alone owing a small business.

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    By stratty
    12th Oct 2005 10:19

    Change of UITF 40
    My limited understanding of this is that now what was work in progress is essentially to be classified in sales resulting in a one off uplift and a greater hit of tax due.

    I wonder if the treasury had anything to do with this because this change will certainly help Gordon Brown reduce his current deficit.

    Or is the body that deals with the UITF rules independent?

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