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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Who are the various people giving conflicting advice? If you are due for a refund, I’d have thought it should be accounted for.
Is the above the right professional judgement ?
I believe so. Who is telling you it’s not?
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!
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.
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.
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
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?
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.
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.