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Losses carried back accounting entries

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Good morning ,group 

Company's year end 30th of Apr 2021.

During 20-21 the company has made a trading loss of £ 30,000.

During the previous financial year ending 30th of Apr 2020 ,the company has made a profit of around the same amount(keep it simple) and paid Corporation Tax.

We intend to claim a tax refund for 19-20 using the 20-21 loss.

I am now preparing the accounts for 20-21 ,the loss year and I have to record the asset (future benefit )which will then be credited into 21-22 -year of receipt.

Some are advising me to just record the receipt and deal with the journal entry when refund is paid in the bank  CR CT expese P/L -Dr Bank .

It doesn't feel right to do that as its against the allocation principle: how is this credit P/L tax expense account relevant for 21-22?

 

I would really appreciate your advice because I keep receiving conflicting information.

Thank you indeed!

Replies (14)

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By David Ex
31st Jul 2021 11:15

Who are the various people giving conflicting advice? If you are due for a refund, I’d have thought it should be accounted for.

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Replying to David Ex:
Ioana
By Ioana B.
31st Jul 2021 11:29

You’re right.

If I am being aware of a future benefit,I should account for it appropriately.

I have dealt before with a loss but carried forward not backwards ;that’s why I felt a bit confused .

However ,I am preparing accounts for 20-21 - year of loss and I will journalise the following entry Dr Tax Asset in BS-CR Tax Expense re prev year code.

During 21-22 when we record the receipt just CR Tax Asset-Dr Bank .

Is the above the right professional judgement ?

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Replying to Ioana B.:
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By David Ex
31st Jul 2021 11:42

Ioana B. wrote:

Is the above the right professional judgement ?

I believe so. Who is telling you it’s not?

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Replying to David Ex:
Ioana
By Ioana B.
31st Jul 2021 12:00

Accountants/Book-keepers.

I tend to use my own judgment when receiving advice- I always do a lot of research before accepting it…if something doesn’t feel right ,then it is not.

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Replying to Ioana B.:
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By David Ex
31st Jul 2021 12:12

Ioana B. wrote:

Accountants/Book-keepers.

I tend to use my own judgment when receiving advice- I always do a lot of research before accepting it…if something doesn’t feel right ,then it is not.

Just seemed odd that anyone would think that the transaction should be accounted for on a cash basis!

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Replying to David Ex:
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By Paul Crowley
31st Jul 2021 15:46

There are accountants with odd opinions
I choose to record on matching so show a credit for the year in the year on tax, for Mainstream Corp tax
It makes a difference to P & L
Exact entry irrelevant
This year, last year or deferred tax, the figure is correct and bottom line correct

S455 causes similar differences on opinion
I show both the liability and an asset
Others choose to ignore and recognise in year of payment

P&L not relevant
BS Retained earnings not relevant

But Current liabilities are
And if director unable to repay loan then omitting the liability is deliberately misleading, in my opinion.

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Replying to Paul Crowley:
By petersaxton
31st Jul 2021 20:19

I agree you should account for the corporation tax debtor.
s455 is different because it's not refundable until the director's loan is repaid.

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Replying to petersaxton:
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By Paul Crowley
31st Jul 2021 23:18

It is a deferred asset of the company
How else does the balance sheet balance?

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Replying to Paul Crowley:
Ioana
By Ioana B.
31st Jul 2021 20:27

Paul,truth is that S455 charge reporting carries different responsibility than what its mentioned above.

Not reporting the balance on DLA unpaid 9 months after year end, its tax evasion …

I can’t believe there are accountants who close their eyes when it comes to this charge.

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Replying to Ioana B.:
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By Paul Crowley
31st Jul 2021 23:16

You completely misunderstood the point
s455 reported but the liability for the tax only accounted for when actually paid, 9 months later.
The other side is a deferred asset to keep the balance sheet balancing.

By recording the liability only when paid I consider the tax arising from the actions of the company in the year to be misleading.
The loan took place in the year and the liability arises in the year

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Replying to Paul Crowley:
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By Tax Dragon
01st Aug 2021 07:04

Paul Crowley wrote:

You completely misunderstood the point.

To be fair, Paul, I'm getting used to reading your comments and even so I think I'd missed your point. You can forgive someone who isn't used to reading you misunderstanding you. (The influence of those aliens that kidnapped you for a couple of weeks on your writing style seems to have worn off after only a post or two after you returned.)

The difference between accountants' views on this presumably arises because they have different answers to the question: does a liability exist as soon as a loan is made, or does it arise (only) if the loan has not been repaid nine months after the year end?

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Replying to Tax Dragon:
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By Tax Dragon
01st Aug 2021 07:08

That said, this has nothing to do with the OP's question. Don't use analogies to explain a scenario, as often supposedly analogous scenarios turn out to be different.

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By Laurence52
31st Jul 2021 11:37

In the 30 April 2021 accounts a journal for the amount of tax being claimed back
debits a corporation tax debtor so as to be in the balance sheet assets at 30 April 2021
and credits corporation tax (P&L) in those accounts.
So the P&L result looks a bit like this:
---------------------------------30.4.21 ---30.4.20
(Loss)/profit before tax ------------- (30,000) --- 50,000
Tax credit/(charge) ------------------5,700 -----(9,500)
(Loss)/profit after tax --------------- (24,300) ----40,500

When the tax is refunded in 2021/22 post it against the corporation tax debtor to leave a nil balance.

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Replying to Laurence52:
Ioana
By Ioana B.
31st Jul 2021 11:56

That feels right,its exactly the way I would proceed with this issue.

Thank you!

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