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Accounting for Corporation Tax and Accounts Fees

Previous accounts did not include Corporation Tax due for that year...

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We've taken on a new client, and looking at the previous set of annual accounts prepared for the company, the amount due for Corporation Tax for that year was not included. We we usually include the amount calculated when forming accounts, so for this year for this company we would include Corporation Tax due for the previous year, and for the year we're forming accounts for now, to bring up to date.

Including two lots of Tax in this years accounts will however bump up Expenditure and impact profits which the client will not be expecting.

In this case, I'm considering continuing along the same vane as the previous accountant, and including only costs actually paid during the year.

Any comment / advice appreciated.

Replies (21)

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By MCV71
28th Jun 2022 12:05

Why would it affect trading profits? There is the heading Profit Before Tax and then in the tax section below that use the Prior Year Adjustment heading

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By bettybobbymeggie
28th Jun 2022 12:28

Wouldn't you adjust the comparative year to introduce the accrual that should have been present?

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By David Ex
28th Jun 2022 12:37

You can present the accounts in any way the relevant accounting standards permit.

That’s what I’d do if I was forming the accounts ….

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By Hugo Fair
28th Jun 2022 12:54

"In this case, I'm considering continuing along the same vane as the previous accountant, and including only costs actually paid during the year."

Although you omitted the question-mark (and btw it's vein not vane), the answer is NO ... assuming that the accrual basis is otherwise being used in the accounts.

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Replying to Hugo Fair:
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By Paul Crowley
28th Jun 2022 13:13

it is a company
Cash basis not allowed

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Replying to Paul Crowley:
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By Hugo Fair
28th Jun 2022 13:36

Spoilsport! :=)

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Caroline
By accountantccole
28th Jun 2022 12:56

Is it material? - PYA might be appropriate
If not, just add it to current year charge in the P&L.
I wouldn't not accrue it, just because the old accountant didn't or forgot

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By Paul Crowley
28th Jun 2022 13:22

Is the real problem that the retained earnings are inadequate for 'dividends' drawn?
Merely asking this question indicates that you are probably not regulated by one of the accounting bodies
Ignoring the tax due makes the accounts knowingly misleading, the accounts are relied upon by lenders and for businesses that give credit. The accounts are in the public domain
I would be astounded if any member of my staff suggested ignoring the known liability

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Replying to Paul Crowley:
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By MCV71
28th Jun 2022 14:06

Not being regulated by an accountancy body does not automatically equate to not having accounting knowledge

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Replying to MCV71:
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By Paul Crowley
28th Jun 2022 14:20

I agree. My business partner has no qualification.
But company accounts knowingly misleading and prepared on cash basis is not what is taught and examined. (Big four audits excepted.)
The title of question also included accountancy fees

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By S_WVA
28th Jun 2022 16:57

Hi all,

Thanks for your comments. I am indeed not regulated, self taught, and haven't done too bad at all over the last 20 years! I usually deal with the small business person though, non-corporate accounts, and so accrual based accounting is not what I'm used to...

I now think I have the correct understanding. There's no intention to mislead, hence asking the question. More that I want to make sure I'm going in the right direction!

Many thanks :)

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By S_WVA
28th Jun 2022 16:57

Hi all,

Thanks for your comments. I am indeed not regulated, self taught, and haven't done too bad at all over the last 20 years! I usually deal with the small business person though, non-corporate accounts, and so accrual based accounting is not what I'm used to...

I now think I have the correct understanding. There's no intention to mislead, hence asking the question. More that I want to make sure I'm going in the right direction!

Many thanks :)

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Replying to S_WVA:
paddle steamer
By DJKL
28th Jun 2022 17:10

You might want to review whether doing accounts on a cash basis for unincorporated entities is actually doing them any favours, afraid my default position would always be accounts prepared on the accruals basis.

Really cannot understand how anyone preparing accounts is unversed with accruals basis accounting.

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Replying to DJKL:
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By Paul Crowley
28th Jun 2022 22:40

The only cash basis stuff I deal with are small charity accounts

Cash basis has just so many ways of going wrong and losing personal allowances, loss reliefs, tax efficiency on capital allowances, loan interest........ad nauseum.

BUT accruals accounting takes more time than just looking at the bank

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Replying to Paul Crowley:
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By S_WVA
29th Jun 2022 12:15

Thank you, this is for a small Community Interest Company, accounts are minor but important all the same :)

I don't usually prepare annual accounts, usually work on the bookkeeping side.

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By S_WVA
28th Jun 2022 17:31

I guess you only know what you know from your own work experience... thank you for your advice, I'll certainly look into it!

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DougScott
By Dougscott
28th Jun 2022 21:57

Blimey, this post certainly makes the case for regulating accountants. I'm not regulated but at least I was properly trained and part-qualified.

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Replying to Dougscott:
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By S_WVA
29th Jun 2022 12:10

Wow, surely this is a platform for helping others. Negative comment is neither helpful nor appropriate. Only kind advice required thank you!

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Replying to S_WVA:
paddle steamer
By DJKL
29th Jun 2022 12:22

People tend to learn from criticism, that is why trainee CAs in my day received criticism/feedback , in the long term it makes them better accountants.

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Replying to DJKL:
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By S_WVA
29th Jun 2022 12:35

I enjoy learning, even at 50, constructive critism yes please, most welcome. Unhelpful bias no thank you.

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Replying to DJKL:
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By Hugo Fair
29th Jun 2022 12:41

Or to put it another way ... "Negative comment is neither helpful nor appropriate" is itself inaccurate - as it is an effective way to help others (so long as the others are receptive to learning and not overly sensitive).

And sometimes the severity of what needs to be corrected has to begin with the injunction to "Stop"!

EDIT: crossed with OP's response ... pleased to hear about ongoing learning (always a good thing), but where's the "bias"?

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