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Accruals on wage

Accruals on wage

Hello all,

I am trying to complete my corporation tax return but had it returned due to an error. HMRC are going to call me to advise.

My question relates to expenses. My current status in the company is that of sole trader to my own limited company. I will become employed in April.

I paid myself by invoice over the years trading (april 2014-2015 £65,000), although with the intention to delay tax liability I invoiced the company 31st March 2015 a further 20,000 then closed off company year and personal year. I then paid the amount May 2015 meaning I owe tax on this 20K by Jan 2016.

Assuming an accurals tax basis. 

Company balance sheet shows- current liability of £25,000 and cash at bank of £20,000 with around £5,000 in debtors.

When completing CP16 directors remuneration: Do I include the 20,000 not paid along with the 65,000 actually paid? Is the CP16 box for actually paid remuneration or can I include accrued remuneration not paid in here? If I add the 20,000 into the box it reduces my corp tax liability, however if I include it in the box directors remuneration not paid my liability for corp tax doubles to tax due on £40,000. My understanding is that accured income and expense should be reported and accounted for in that period and that corp tax is on this basis and not a cash basis

Any advise here PLEASE!

Thanks,

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By Kevkava
23rd Feb 2016 13:17

Confused by name! Your post indicates that you are way out of your comfort zone. You say you are a sole trader, invoicing your company, but go on to ask about the treatment of director's remuneration. But director's remuneration is just salary, paid to an employee who happens to be a director of the company.

From your post I assume you haven't even considered operating a PAYE scheme?

The amounts you mention are significant enough to land you in serious trouble if you get it wrong. Besides anything else, the corporation tax return is a by-product of the company accounts, which you haven't even mentioned.

Do yourself a big favour - speak to business friends in the area and find a good accountant asap.

Thanks (2)
23rd Feb 2016 13:23

I agree with the above.

The key piece of advice is to stop now and before you do anything further complete the company's accounts, with or without the assistance of a competent accountant. Don't go near the CT return again until you have finished your accounts.

Then everything will fall into place. The answer to all your questions as to how thing should be treated for tax purposes is that they are treated in the same way as you treated them in your accounts.

Thanks (2)
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By SJRUK
23rd Feb 2016 16:53

Dates

Your dates are a little confusing.

You say you invoiced the company £20,000 on 31st March 2015 and presumably its this figure that's in the £25k liabilities.  If that is the case then the £20k should also be on your 2014-15 personal tax return as this would be your debtor, so you haven't really gained anything.

If you invoiced say on the 6th April then you could accrue the expense in the company accounts but on your self employment pages this should be treated as work in progress - so again you are not gaining anything.

If you invoiced on say 31st May 2015 and this was for services provided 1st April to 31st May 15 then you can defer including this on your tax return until 2015/16.  However you would not be able to include this in the Company's accounts to 31st March as it doesn't apply to services for this period.

So as you can see the expense needs to be included in the same tax year for both company and your self employment.  You cant have the expense in one tax year for one and another tax year for the other.

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23rd Feb 2016 23:02

Thanks for your help!

I was trying to run the company on acurals and my personal on cash basis. Is this not allowed?

The business I have run is that of selling employing sole traders on commission only. It ended up that I generated the majority of sales. I believe how I have come unstuck is the confusion between employees and subcontractors. The CT return only offers boxes for employee or CIS. My wages bill (mostly subcontractor, including my self) should this have been cost of goods sold (COGS) rather that entry into employees (which appears to be PAYE i now realise)? Should my staff costs be in COGS?

Thanks, 

N

 

 

 

 

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23rd Feb 2016 21:09

Follow the advice above
Engage an accountant / tax advisor to deal with this. Your giving yourself a total headache for between £500 - £900! Im not saying you would get penalties as it sounds like a muddle rather than a fiddle but your opening yourself up to a compliance visit for failure to operate PAYE, and errors on your company return. Also your own personal returns could end up with an enquiry and possible discovery assessments etc just to save a few £££s in fees...... It seems foolish. At that level of earnings you might be able to save more on tax than what the fees are (Maybe)

I just cant understand why you would want to take income at income tax / NI rates as opposed to paying CT tax and taking dividends especially in this or previous tax years not to mention payments on accounts etc from your soletrade. Did the sole trader business have unrelieved losses or something your trying to utilise??

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23rd Feb 2016 22:58

Thank you for your help.

The reason I structured it in such a way is that I didn't own a home and so decided to go down the slightly more expensive route of drawing funds to purchase a property by being a sole trader. Now that I own the property I intend on going down the route of PAYE with dividends and eventually winding the company up and using entrepreneur relief for the remaining company funds. To be honest I wanted to pay my tax and use the cash to buy the property.

I had it in mind that for the company I would have accounting set using acurals and personal as cash basis.

The business I have run is that of selling employing sole traders on commission only. It ended up that I generated the majority of sales. I believe how I have come unstuck is the confusion between employees and subcontractors. The CT return only offers boxes for employee or CIS. My wages bill (mostly subcontractor, including my self) should this have been cost of goods sold rather that entry into employees (which appears to be PAYE i now realise)?

Thanks!

N

 

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23rd Feb 2016 23:05

N.B: As i intend to enter into a PAYE arrangement in April 2016 I assume that my subcontractor wage taken 2015-2016 will not require a payment of account as my business (soletrader) will cease at this point and dividends are only from distributable profits and won't be included on payment on account?

 

Thanks,

 

N

Thanks (0)
24th Feb 2016 10:06

Whoa !!

Confused_1 wrote:

N.B: As i intend to enter into a PAYE arrangement in April 2016 I assume that my subcontractor wage taken 2015-2016 will not require a payment of account as my business (soletrader) will cease at this point and dividends are only from distributable profits and won't be included on payment on account?

N

Whoa !!  Confused by name and confused by nature.

You may be right but payments on account don't just come from trading profits so you have to assess whether you will owe anything in 2016/17.

Your main problem seems to be failing to recognise that you are not the company.  Legally, you are entirely separate and need to be treated as such.

But - generally - you are way, way off the beam and the best advice the respondents on here have given you is to go to an accountant, which you should have done from the outset.

Supplying self employed labour to a limited company of which you're a director is generally regarded as "questionable" and you may have a problem here.

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23rd Feb 2016 23:24

Seriously mate do yourself a good turn.....
And take this to a local accoutant, it will likely cost about £750 for everything. Dont think im attacking you but what are you talking about ER relief for if your strugling with COGS and so on.

I could be very wrong but the initial figures your using would normally lead to a higher tax liabilty your mad way than going down the conventional route for OMB of PA salary & Dividends. Obviously im counting in my head rather than laying out the computations. You could also have created a directors bonus provision if done properly and got legitimate tax relief by deferring the tax liability.

To be honest i had to read it a few times to work out your moves and even now im still not sure iv got a grasp of it.

i see what your now trying to re accraul basis & cash basis so your deffering the liabilities but clearly you have came unstuck and im not entirely sure how successful your going to be if an enquiry opens. I mean do you have proper contracts in place for sub contractors, have you got photographic ID of each person so your sure they are who they say they are, did you take a note of the UTR's""" is it actual self employment or false self emplyment?? Is there PAYE failures, are the payment to subbies falling under the CIS scheme. Then if you overcome all that is your own SA return in order, can anything be discovered back the previous 6 years.

Basic mistakes in returns can lead to total sore heads. Seriously go get some profesional help

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24th Feb 2016 08:44

The only good advice you can get here for your situation

bumpdinkwhallop wrote:
Seriously go get some profesional help

 

Engage an accountant and he/she will help you to sort this out and possibly will save more in tax than you`ll spend on their services.

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24th Feb 2016 09:42

Seriously

without wanting to be unkind, your posts read like an accountancy textbook fired through a shredder, get an accountant to sit down with your records and tell you the best way to put the accounts and tax return together and the best way to get the money out of your company or you could end up paying ten times what you owe in tax and penalties.

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