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Old Accountant left an unnecessary PAYE bal on SFP

"Liability" built up over a few years due to previous Accountant not adjusting for the Empmt. Allow.

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Hi All,

It would be great to have some opinions on this...

Ltd Co reporting undr FRS105.  Also an employer with a PAYE scheme.  Annual T/O approx ranges between £160k and £220k.  Annual PAYE bill between £1,500 and £2,700, offset by successfully claimed Employment Allowance.  Previous Accountant did not adjust for the EA, so left a liability of c. £6.7k which seems to have built up over a few years.

Stat Accounts

In my opinion, the annual amounts are not material, and so the Stat Accounts do not need re-stating for prior years.  Simply a singe adjustment to the current year.

CT

Prior year was a loss, all of which was carried back, and the refund received.  The client is new to me, so I haven't yet seen the CT600 for the year before that (of course, I can request it from them).

Obviuosly, the correct adjustment in the prior year would have meant a credit to the P&L, and corresponding lower CT carry back relief.  I'm not so worried about that, as it is withing the 12 mth limit for amendment.

My issue is with the remaining liabiity - which presumably pre-dates the Prior Year - after both that year and the current year are adjusted for.  To illustrate:  Unadjusted current year Balance Sheet balance (£6,700), current year adjstment £2,700, prior year adjustment £2,300, remaining liabiliity to clear £1,700.

As you can imagine, I would prefer not to get involved in going an additional year back and potentially opeining up a can of worms which I had nothing to do with, but I would also like to get it right!  I'm wondering about writing back the £1,700 in the current year, so the balance from there on in is correct.  I'd love to be able to simply write the whole £6.7k back as a current year correction, because in terms of CT, it will all iron itself out.

Would love to hear what others think.

Replies (9)

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By ireallyshouldknowthisbut
01st Jul 2020 17:00

I would only restate if I thought it to be material.

Otherwise I would book the lot in this period so your balance sheet is right.

The P&L is just the difference between the closing balance sheet and the opening one, however bad it is. if its unbelievable bad, then sure, restate for reporting, but its still going to hit your CT return in the period unless you redo those too, which generally you will not get any gold stars from your client doing, and HMRC wont care if the tax is the same. If the rate of CT was moving, I would be more inclined to amend the older returns.

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Replying to ireallyshouldknowthisbut:
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By Philosophic1
01st Jul 2020 17:22

Thanks so much for taking the time to read and respond. A very reasonable approach, and indeed what I may end up doing.

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Replying to ireallyshouldknowthisbut:
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By Paul Crowley
01st Jul 2020 17:44

Same here. It all balances out in the end.

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RLI
By lionofludesch
01st Jul 2020 18:06

The tax treatment follows the accounting treatment.

If you don't think it's material for the accounts, it's not material for CT. HMRC have no right to dispute it.

Jeez - what a dork, though, How did he think that was a liability ?

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Replying to lionofludesch:
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By Paul Crowley
01st Jul 2020 18:16

You really ought to see some on the nonsence I see from bookkeepers using software.
BUT bless them all the bank always balances

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Replying to lionofludesch:
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By Philosophic1
01st Jul 2020 18:31

Thanks. I thought I read somewhere (ages ago) that tax returns had to be spot on (however unrealistic that may be) and didn't benefit from the concept of materiality. Happy to be wrong about that, though.

[Not that it matters at all - it was a "she" - now quit Accountancy to go into Property. Yet another aspiring portfolio landlord, I assume. :-( ]

The engagement was only for Stat Accounts and nothing else, as the in-house Bookkeeper dealt with the rest. I expect it was the frequent situation where numbers weren't fully checked - partly relying on the ultimate onus on the taxpayer, and in this case with the added benefit of the TB coming from a Bookkeeper.

Having only been in Practice about 4 years myself, it seems to me that there's no money in it anymore without volume. It might be much better for long established Practices, but I've certainly been looking at other options within & outside of Accountancy, because so far the rubbish we have to deal with doesn't seem remotely worth it. Stuck between clients, HMRC, and our PBs.

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Replying to Philosophic1:
RLI
By lionofludesch
01st Jul 2020 19:06

Philosophic1 wrote:

Thanks. I thought I read somewhere (ages ago) that tax returns had to be spot on (however unrealistic that may be) and didn't benefit from the concept of materiality. Happy to be wrong about that, though.

<>

Au contraire. The accounts, prepared using GAAP (now whatever FRS you're on).are paramount.

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JCACE
By jcace
01st Jul 2020 19:51

I presume that you have checked that the client concerned is indeed eligible for the Employment Allowance and that there aren't any connected companies claiming, that it's not a sole director only on the payroll etc etc

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Replying to jcace:
RLI
By lionofludesch
01st Jul 2020 20:16

jcace wrote:

I presume that you have checked that the client concerned is indeed eligible for the Employment Allowance and that there aren't any connected companies claiming, that it's not a sole director only on the payroll etc etc

Fair point - bit these secondary contributions clearly weren't being paid.

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