HMRC revise and update their guidance on UITF 40.

I am pretty sure that the ASB has not got a clue, and has absolutely no interest in how accounting standards affect SMEs. Anyway, we now have to live with this, and it is probably better to avoid using the AAT/ATT guidance for the time being. Hopefully we will eventually find out why they changed their views.

I remain bemused by the whole UITF40 issue, like most general practitioners. It has gained status as a standing agenda item for our town group over the last 18 months and there are two polarised views.

I was originally in the ‘they can’t mean this’ camp, then did some research and reluctantly came round to the concept of recognising income on a time basis.

However I now think that the AAT guidance is spot on, (shows the strength of my intellectual rigour!) and benefits study. It goes back to the common sense view I initially held, that ‘if you were doing it right then nothing has changed’. I hear what Mike Truman says, but I doubt very much that his article will be the last word on this issue.

Take a step back – would a UITF pronouncement seek to change the whole basis on which we recognise income?

I think that the whole UITF40 issue turned long ago into a debacle and nobody has had the guts to acknowledge that fact. The profession is still deeply divided on it and this for me illustrates that it cannot become ‘Generally Accepted Accounting Practice’. I suggest that the only way to resolve the whole issue is for an accounting standard on income to be developed so that the whole issue can be debated properly.

Tim

Having not kept up with developments recently I've only just read the ATT/AAT further guidance. As Mike's article says (freely available on the taxation website from Mark's link below) and Nichola also says - be warned about following it.

The thing that has always struck me about the previous guidance (and this one, now) is that the CIOT (the senior 'sister' body of the ATT didn't support it, but go along with the consensus CCAB/HMRC position - what does that tell you?)

http://www.att.org.uk/attach.pl/441/533/UITF%2040-draft%20of%2021%20November.pdf

I've just read the document and think their tax is shoddy and in the key place too.

Their argument in many cases relies on a far-fetched interpretation ('proved' by highlighting certain paragraphs from the accounting standards) that the UITF's Abstracts are not worth the paper they're written on.

They conclude this argument in paragraphs 14-16 with the section 'Who is affected?'. They say that as ANG was only codification of existing best practice it doesn't affect people who were following that practice and there is therefore no change in accounting policy or adjustment income under s227 ITTOIA 2005 (if their interpretation is true, I agree with this).

They then go on (in the only paragraph in the document that is in italics - i.e. the most important bit?) to say that the only people who will have adjustment income are those who did not follow best practice in the past.

But this is just plain wrong for tax (and the ATT is supposed to be a tax body!). Section 227(1)(b) requires that for an adjustment to be treated as adjustment income, 'the old basis accorded with the law or practice applicable in relation to the period of account before the change'.

If only businesses that didn't follow the previous best practice have changes in accounting policy, then these changes in accounting policy are NOT adjustment income. [and in particular would not get the 3-6 years' spreading]. They are errors in prior years and would need to be dealt with on some other basis (error or mistake claim, etc.).

For what it's worth, I think the 'consensus' reached makes sense objectively. If we'd always done it this way no-one would be complaining. There is, of course a bringing forward of tax that would otherwise be deferred to a future date by implementing the change in revenue recognition policy (but there are the spreading provisions to help some way towards this.)

As Mike (effectively) says in his article, please can we put this argument to bed?

Just read Mike's piece, which for those who do not subscribe to Taxation magazine concerns "New guidance" issued by the ATT and AAT on 21st November 2006. The ATT are the Association of "Taxation technicians" and the AAT are the Association of Accounting technicians.

His piece is not about HMRC's guidance; instead, he explains that the ATT and AAT new guidance is not in accordance with that given by the ACCA, ICAEW, ICAS, ICAI, CIMA and CIPFA. So if you are ATT or AAT you may want to consult your association to see what you really should be now doing.

At this point I sincerely eat my own hat. I feel my critiscm of HMRC not getting its helpsheets right is unfair. If the ATT and AAT have still lost the plot then it is not surprising that some at HMRC may also have had a few problems with it all. The HMRC latest guidance does though agree with that of the other bodies now (just not the AAT/ATT).

OK, that's cleared that up. What day did you say it was?