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Prior year adjustment and Tax

Prior year adjustment and Tax

I would be grateful for guidance on the below. I have read up on this but would appreciate some practical guidance from the AW members.

We took over a new client, say ABC Ltd and are preparing the accounts for y/e 30/9/17.  During the year a loan repayment of £6K was made. However we discovered that the original incoming loan, received in the y/e 30/9/13 was totally omitted from the accounts. So there is no Creditor in Sage against which the Debit can be posted. This was because the loan was paid directly by the loan provider to a third party supplier of ABC Ltd for some sort of subscription. The previous accountants did not pick this up.

We are using FRS105 to prepare the 30/9/17 accounts. We use VT Final Accounts. Turnover is £97K, PBT is £26K.

We now need to bring in the Loan of £6K into the BS. What is the best way to deal with this? This would be a Prior Period adjustment as it is material, but I cannot see an option in VT, using the FRS105 template.

Also how do we deal with this in the Tax Return? Clearly the 2013 profits were overstated by £6K. Do we just the reduce the current year profit of £26K in the computation? But then the relief would be partially at 19%, whereas the tax would have been paid at 20% in 2013?

Thanks for the help

 

 

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20th Jun 2018 04:39

Presumably the liability to the supplier “for some sort of subscription” was omitted as well? You don’t say, but it must have been for the profit to have been overstated, as you say it was.

On the figures you quote I would just book the supplier’s invoice in the current year and not worry about a PYA.

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20th Jun 2018 05:40

Is it the case that the loan related to a subscription spread over a number of years & therefore each loan payment has just been expensed to P&L reflecting that?

Whether that or not probably easiest to just reflect the expense in P&L in the current year.

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20th Jun 2018 06:50

The answer for tax may differ from the answer for accounts. For tax, you should not be claiming a 6k deduction in the current year.

Whether an issue arises probably depends on whether it's capital.

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to Tax Dragon
20th Jun 2018 07:45

Tax Dragon wrote:

For tax, you should not be claiming a 6k deduction in the current year.

Surely that depends on what the £6k represents?
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to Wanderer
20th Jun 2018 09:34

I withdraw my comment. Ss46-48 CTA2009 are potentially in point.

But, like the OP, I question whether inclusion in the current year is correct.

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to Tax Dragon
20th Jun 2018 10:41

It’s not material enough to be a PYA - in my opinion.

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to johngroganjga
20th Jun 2018 12:16

But in the OP's it is.

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By Bobbo
to johngroganjga
20th Jun 2018 13:27

Based on the OP's stated turnover and PBT figures, how much would this need to be for you to consider material?

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By aadil
20th Jun 2018 14:13

Thanks for all the comments.

I took it to be material as it is 23% of the PBT.

But I agree that it would be easier to book it in the current year.

We are still awaiting the original invoice that was paid by this £6K. All we have been told so far is that it was a one off subscription.

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