CIS refund for CT600

How do you account for HMRC refund for CT purposes

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Hello everyone. 

 

New to the website, new to the accounting...basically all new.

 

Just finished my AAT Level 4 studies. Unfortunately, we all know that what we are studying on black and white paper its not all covered in real life examples. Here where my problem comes for.

 

Im trying to do my partner's accounts on his Ltd.

 

So far so good but...here comes a repayment from hmrc. Im not sure how to account for that amount. I understand its part of the turnover and have to be included. But do i include the full amount or some apportionment should be done. 

 

Let me elaborate. 

 

My partner's accounting period runs from 20/09/2022 to 19/09/2023 in which period he had a payment entered the bank account from HMRC CIS refund for the amount of  £9898.48. And this is where i struggle the most. Although the money was received in the accounting period that same money are for a period 06/04/2022 to 05/04/2023.

 

I've seen in the previous 4 tax returns that have been done from different accountants that they have included the entire repayment in the turnover and just cant understand why that is, if just part of the money are for the relevant accounting period?

 

What would the double entry be for such transaction?

 

I am so very confused.

 

Thank you for any help.

 

I am really sorry for any misspellings

Replies (20)

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Stepurhan
By stepurhan
17th Apr 2024 09:55

The problem that is coming in is that, having realised that exams do not prepare you for the real world, you are still trying to deal with a real world issue you don't understand. There is a reason why many professional bodies require you to get real-life experience for a practicing certificate.

But, to give you a pointer, what should have happened is as follows.

Turnover (credit) - Full amount invoiced
Bank receipt (debit) - Amount received from customer net of CIS
Debtor (debit) - Amount of CIS to be reclaimed from HMRC

Thanks (4)
Replying to stepurhan:
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By Amgservices
17th Apr 2024 14:27

Hi. Thank you for your input.
I am "trying to deal with real world issues" because i want to make sense of them. Not actually to submit the Accounts. I just have invoices and bank statements, and a free trial software and really trying to understand things on my own.
In order to get the experience to do it, someone have to give me a chance, and they won't unless i have the relevant experience...its a vicious circle.

Thank you anyway

Thanks (0)
Replying to Amgservices:
Stepurhan
By stepurhan
18th Apr 2024 10:27

Amgservices wrote:
In order to get the experience to do it, someone have to give me a chance, and they won't unless i have the relevant experience...its a vicious circle.


I agree that someone should give you a chance to get relevant experience. Completing AAT Level 4 without support from a practice is an impressive achievement that should make employers want to give you that chance.

What is not a good way to get experience is asking piecemeal queries on an online forum. Whilst there are many highly knowledgeable members here, and I have learned things myself from many of them, it is no replacement for the comprehensive support a direct mentor could give you.

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Replying to stepurhan:
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By Amgservices
18th Apr 2024 11:49

I agree. Absolutely. But thats not possible, I've tried everything to get a mentor, to get experience it just not happening. No one would give you the opportunity, and im not blaming them either. I've even offered multiple practices working for free for a year, in exchange of getting the experience. None would agree.
So what other choice do I have getting my head around this stuff besides asking knowledgeable people? If you know a way that i don't , please do share. Otherwise with all due respect i dont need that kind of input from you.
Thank you

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Replying to Amgservices:
Stepurhan
By stepurhan
18th Apr 2024 13:13

Amgservices wrote:
Otherwise with all due respect i dont need that kind of input from you.

You've asked on a free public forum, so it is not up to you to dictate what responses you get.

Regardless, I would say a lot of people in practice would say that your question shows a severe lack of understanding of how CIS works. Points raised by others indicate there are other gaps in your knowledge. I repeat, trying to get an understanding of a topic for a forum is not a good idea.

I'm taking you at your word that you have actually achieved AAT Level 4. However, you are entirely new to this forum and have only responded to your own question so far. I suggest you take a look around the forum and see how many business people looking for freebies ask questions on here. See how many object to people suggesting they should get professional advice. Marvel at how many claim experience and advice that is clearly lacking in their question and responses. The reaction you have received is mild so far.

As for alternative suggestions about getting a job, how are you approaching firms? Are you actually looking for and applying for jobs, or just touting yourself around any firm you can find? If the latter, I think that might be your problem. Someone turning up on the doorstep and offering to work for free would set off all sorts of red flags. See the thread below for more detail on why.

https://www.accountingweb.co.uk/any-answers/expectations-of-an-aat-level...

Thanks (1)
Replying to stepurhan:
RLI
By lionofludesch
17th Apr 2024 14:47

stepurhan wrote:

The problem that is coming in is that, having realised that exams do not prepare you for the real world, you are still trying to deal with a real world issue you don't understand. There is a reason why many professional bodies require you to get real-life experience for a practicing certificate.

But, to give you a pointer, what should have happened is as follows.

Turnover (credit) - Full amount invoiced
Bank receipt (debit) - Amount received from customer net of CIS
Debtor (debit) - Amount of CIS to be reclaimed from HMRC

I wouldn't leave the debt showing as due from the contractor. He doesn't owe the subcontractor anything. The debt is due from HMRC. Easiest way to do this is set up a bank account for HMRC. Then

Turnover (credit) - Full amount invoiced
Bank receipt (debit) - Amount received from customer net of CIS
HMRC "Bank"(debit) - Amount of CIS to be reclaimed from HMRC

Then all you need to do is reclassify the HMRC account as a debtor.

Thanks (2)
Replying to lionofludesch:
Stepurhan
By stepurhan
18th Apr 2024 10:23

I was intending it to be a debtor from HMRC, not the original contractor. Not sure I'd treat HMRC as a "bank" though.

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Replying to stepurhan:
RLI
By lionofludesch
18th Apr 2024 13:35

stepurhan wrote:

I was intending it to be a debtor from HMRC, not the original contractor. Not sure I'd treat HMRC as a "bank" though.

Well, you could do a journal, of course. Harder to explain to the layman though.

Actually, I've always said that CIS is like a savings account which you have at HMRC Bank.

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By Paul Crowley
17th Apr 2024 10:18

Was there debtor on the balance sheet of the accounts last year for cis tax?

Thanks (3)
Replying to Paul Crowley:
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By Amgservices
17th Apr 2024 14:30

Hi, no debtors in last years balance sheet

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Replying to Amgservices:
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By Paul Crowley
17th Apr 2024 14:34

Does not sound like the accountants were any good

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RLI
By lionofludesch
17th Apr 2024 10:52

What is he doing with a crazy year end like 19th September?

Thanks (7)
Replying to lionofludesch:
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By Amgservices
17th Apr 2024 14:31

Hello.
I think the accountant that incorporated the company wanted to have a period start date to be same as incorporation date.
She specifically wrote letter to HMRC to change the accounting period to align wiht incorp date

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By DKB-Sheffield
17th Apr 2024 11:28

Adding together the 3 previous replies...

CIS Tax repayment is not turnover, it's a repayment of tax deducted (possibly held in a PAYE/NIC/CIS control a/c) - per Paul

The charges/ invoices made to the contractor should be recorded gross (before CIS). Theoretically, if all transactions took place within the FY 'your way' could work (Net + CIS = Gross) but... they don't (and I assume haven't) most of the time - per Stephuran

I hate to draw conclusions but, it seems the payments from contractors are based on bank receipts, not invoices (hence the problem). This is a company, hence 'cash-basis', is neither appropriate, nor permitted (under relevant GAAP and CT).

As for the year end, this is crazy - per Lion. A concerted effort has been made to *change* the year end at some point. The default date (following incorporation) would have been EOM. Either it has been shortened by a day 11 times... or 19/09 has been chosen specifically(?!). If this is on advice from the previous accountants (or has not been done contrary to the advice of the previous accountants), I'd be loathe to draw any conclusions as to *correct* practice from the previous 4 returns!

Thanks (2)
Replying to DKB-Sheffield:
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By Amgservices
17th Apr 2024 14:40

Thank you for your response.

I think the accountant that incorporated the company wanted to have a period start date to be same as incorporation date, not sure why, maybe its her way of working.
She specifically wrote letter to HMRC to change the accounting period to align wiht incorp date.

However, i dont know specifically how things were done in the previous 4 years, i am just looking at the tax returns that I've got.
I was curious how they have came up with the turnover on previous years, so I've downloaded the statements, summed up the net income, grossed it up to see the CIS deducted and added the 2 together. The figure i got for all 4 years is exactly the turnover figure reported in Ct600.
In the past 4 years i haven't been asked to send any documents throughout the year to the accountants, just bank statements when the company was due a tax return.

Thanks (0)
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By lesley.barnes
17th Apr 2024 11:59

First point are you sure of the accounting period? Check it in Companies House and for the Corporation Tax return. As other have said it is highly unusual to have these dates.

Secondly the repayment dates 6th April - 5th April 2023 are correct. You'll need to submit a repayment claim for 6th April - 5th April 2024, by using your PAYE system to show the amount of deduction and then reclaiming it from HMRC through the repayment system for Ltd Co's.

Some of this repayment for 2023/24 will be in the accounts you are completing up to the 19th Sept 2023. The rest of the repayment is in the payment you've already received covering 20th Sept 2022 - 5th April 2023. The balance will be in the accounts previously completed for 20th Sept 2021 - 19th Sept 2022.

Why don't you let your partners accountant complete the accounts and then you can ask them the questions if you don't understand it also you could ask them to make the accounts dates more sensible so they are easier to manage.

Thanks (1)
Replying to lesley.barnes:
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By Amgservices
17th Apr 2024 14:50

Thank you for your reply.

I am absolutely sure about the accounting period of the company.
I think the accountant that incorporated the company wanted to have a period start date to be same as incorporation date.
She specifically wrote letter to HMRC to change the accounting period to align wiht incorp date.

With that being said, i dont understand why in the CT 600 the turnover recorded is the net amount during the accounting period + CIS, if the cis reclaimed is for a period within the tax year and not as you pointed out "Some of this repayment for 2023/24 will be in the accounts you are completing up to the 19th Sept 2023. The rest of the repayment is in the payment you've already received covering 20th Sept 2022 - 5th April 2023. "
All of the repayment for the period 06/04/2022 - 05/04/2023 is included in the tax return ..
Im not sure if i ask my question clearly for you to understand. Im sorry about that

Thanks (0)
Replying to Amgservices:
RLI
By lionofludesch
17th Apr 2024 15:00

Amgservices wrote:

Thank you for your reply.

I am absolutely sure about the accounting period of the company.
I think the accountant that incorporated the company wanted to have a period start date to be same as incorporation date.
She specifically wrote letter to HMRC to change the accounting period to align with incorp date.

She'd no need to do that. The first CT period ends after a year anyway. Draw what conclusion you like from that.

Did she change it at Companies House? Have you checked? If not, do it.

I've never done CT returns for a company with a 19th September year end (can't imagine why not), but is there not some weird provision where you claim credit for CIS deducted during the year ended 5th April prior to the accounting date?

Or has that anomaly disappeared?

Thanks (0)
Replying to lionofludesch:
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By Amgservices
17th Apr 2024 15:41

From companies house:
Incorporated on
20 September 2018
Accounts
Next accounts made up to 19 September 2024
due by 19 June 2025

Last accounts made up to 19 September 2023

Confirmation statement
Next statement date 19 September 2024
due by 3 October 2024

Last statement dated 19 September 2023

From company's business tax account at HMRC:
Accounting period ending 19 Sep 2023

Thanks (0)
RLI
By lionofludesch
17th Apr 2024 12:14

CIS - 5th April year end every time.

I would accept 31 March.

Thanks (1)