New client took out a personal mortgage to introduce to company to purchase a new factory.
Asset recognised on balance sheet with corresponding amount in directors current account.
Historically the accountant has debited the annual interest charge and credited the annual mortgage interest to accruals.
Repayments of the mortgage have been classed as drawings with the interest accrued for seperately.
Technically as it has been accrued for seperately and not credited to the directors current account then the interest hasn't been paid? And this would explain why no ct61s have been declared?
Is any one able to confirm that the above is viable? If that's the case would the ct61 come into effect when the accrued interest is charge to the current account and effectively paid? Also would the director then have the right to offset the mortgage interest from the previous years against the interest declared on their personal tax return?
Many thanks
Replies (13)
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A few issues
CT61s are not in point, because no interest has been paid - yet.
The director should already have been claiming relief for the interest paid by him (provided the company is a trading company, which appears to be the case) - in any event. no, he cannot offset interest paid in previous years against interest received now.
Has the company claimed a deduction for the interest charged to the P&L? If so, you may want to re-consider that.
The best course of action
Is to tell your client that his previous accountant screwed up. "Re-doing" the accounts and tax returns? Not something that I would want to consider doing.
But you didn't answer my last question.
You've missed my point
So I'll try and make it clearer.
You say that the interest has been debited to the P&L (which is of course correct). The question is whether that interest charge was added back when preparing the corporation tax computations and returns. If it wasn't, you've got some thinking to do.
It's certainly A course of action
But it's not the one that I would recommend. Good luck in arguing the "net tax due" point.
Not sure what you want
You asked for a recommended course of action. I've given it to you. You seem to be looking for an endorsement of your proposed course of action, but you won't get that from me. If that appears to be unhelpful, so be it. I'm all for helping clients deal with their problems, but in this practice that does not extend to re-writing accounts and tax returns simply to cover up the [***]-ups of the previous agent.
The best way to move forward in my opinion is to leave the past where it belongs and to ensure that things are done properly in the future. If the client has overpaid tax as a consequence of the previous agent's shortcomings there is a way to deal with that - but it's not your problem.