A commercial property company sold its only property 2 years ago and recorded a gain and paid tax on the gain.
A. The company has been waiting for the construction retentions refund which had 2 years expiration period, however the company failed to get the retention refunded and therefore the receivable has to be expensed.
B. In addition, the company recently received invoices from a supplier regarding work done on the buildings 2 years ago which were not invoiced before.
So how best can you post these two expenses given the asset was lost and the gains already computed and recorded in prior accounts. One way is to adjust profit on disposal or sundry expenses - do you agree?
Replies (6)
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Well, they're a touch stupid for not accounting for these things at the time of disposal.
Since it was the only property owned by the company, it's all just P&L expense, however you choose to describe it.
Maybe reading too much into the words but the timings make it sound like the property was constructed and immediately sold. Was this a property investment or trading company?
A is a very common issue in property development, B I would have told the supplier to get lost.
Either way, the lesson here is that it is always better to over accrue for costs and end up with tax to pay for a future year than what you have now which is a future year loss. However all is not lost, you should be able to carry that loss back, either using the temporary 2 year rule or the more generous terminal loss.
But if the sole property was sold 2 years ago, there is a reasonable chance that the trade (if it was a trade) ceased at the same time. Which would leave little to be done with what would be post-cessation expenses. But perhaps a trade has continued - who knows?
But perhaps it was a capital gain - again, who knows? OP talks about 'gains' rather than 'profits', but perhaps that's just laziness. If it was a chargeable gain, TCGA 1992 s48 might come partially to the rescue.
Either way, the lesson here is that it is always better to over accrue for costs
Is this not financial reporting fraud and possibly tax evasion?
Winnie Wiggleroom wrote:
Either way, the lesson here is that it is always better to over accrue for costs
Is this not financial reporting fraud and possibly tax evasion?
No