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Amending filed accounts and CT returns

Best way to amend incorrect accounts

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I have recently taken over a hair salon from a previous accountant.

My client has rented out a chair for the past two years.

The previous accountant has ignored this and for years 15-16 and 16-17 instead of recording the rented chair income as subcontractor costs they have entered it as dividends which resulted in large corporation tax bills.

They also failed to advise my client to file SATR's to declare the dividends  (which is a good thing really as they didn't receive dividends!)

What is the best way to amend this? The easiest way would be to make an adjustment on the current accounts 17-18 which will show a loss this year and carry it back to reclaim CT paid in previous years. Is this acceptable or should I file amended accounts and CT returns for the past 2 years?

 

Replies (5)

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By johngroganjga
16th Apr 2019 21:27

You mean the payments to the renter of the chair (i.e. the gross income less the company’s chair charge) were recorded as dividend payments to the shareholder?

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By moboffsol
16th Apr 2019 21:49

My client is the owner/director/sole-shareholder
The total sales are recorded in the accounts. The chair renter gets 50% of their own earnings.
This 50% has been totally omitted in the expenses and recorded as a dividend.

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Replying to moboffsol:
By johngroganjga
16th Apr 2019 22:20

Yes that’s what I thought, but was just checking.

So the way to correct the accounts is a PYA in the 2018 accounts. The way to correct the tax is to amend the 2016 and 2017 tax returns.

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By moboffsol
16th Apr 2019 22:32

Thank you I really appreciate your advice. So if I add the subcontractor expenses omitted in previous years to this year's accounts that would be acceptable? And then amend the tax returns at HMRC? If I carry the loss from this year back to previous years would this not prompt a repayment without having to amend the tax returns? Sorry it's the first time I've come across this scenario and my poor client didn't have a clue.

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Replying to moboffsol:
By johngroganjga
16th Apr 2019 23:23

No you won’t have a loss this year because your PYA (before tax) will be what you reduce the 2016 and 2017 profits on the amended returns by.

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