Resubmit Corporation tax Return

Resubmit Corporation tax Return

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We have bought a company that had £1M in turnover which has been found to be an error. The auditors did not want to re-submit the financial statements and we have been forced to write-off in this year. We have paid tax on this income that will never be received.

Can I re-submit the CT600 for last year with this income removed and claim a refund for the tax paid? 

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By johngroganjga
01st Oct 2014 11:42

You will obviously get tax relief for the write off in the current year if you do nothing.

The problem you will have if you submit an amended tax return for last year is that without a lot of work and explanation it will be rejected as not in accordance with the accounts, which of course it won't be, unless you withdraw, amend and re-issue them, which you say the auditors won't co-operate with.

Do the auditors agree that the accounts were materially incorrect?  Or do you have a difference of opinion with them on that?

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By Davidbonar
01st Oct 2014 13:54

Firstly, it is the directors' responsibility, not that of the auditors, to decide whether to withdraw and resubmit the accounts. If the directors decide to go down that path, the auditors then have just two options: audit the amended accounts and issue an appropriate opinion, or resign their appointment. The question for the directors is: is it worth forcing them to make that choice?

Secondly, as johngroganjga says, you'll get the tax back when you submit this year's accounts and tax return with the write-off. In purely economic terms the cost to you of not resubmitting is therefore just the time value of being deprived of the tax on £1m turnover for one year - maybe £20-25k, depending on your cost of capital. But, of course, if there are cash flow or loan covenant difficulties the real value to the company might be more than that.

If the auditors think the accounts were correct and the proposed amendment is wrong (ie they disagree with you about the facts and/or the law and/or the relevant accounting standards), and the amendment is material, then the auditors should qualify the revised accounts. In such a case, HMRC would not be likely to accept the revised tax treatment on the basis that it relies on incorrect accounting, and you will have achieved nothing other than annoy the auditors (and probably also HMRC).

If the auditors agree that there was a material error, but don't want to resubmit just because they are embarrassed at having previously given a clean opinion on accounts now found to have contained a material error, then they are at best unprofessional, your relationship with them is already unsatisfactory, and you should look for new auditors anyway (and maybe also report them to their professional body).

The hardest situation to resolve is if the auditors agree there was an error but think the accounts were materially correct anyway (ie the proposed change is not material). You are entitled to resubmit anyway, and if the directors decide to do so the auditors must either give you a clean opinion (because by definition the amended accounts are still materially correct) or resign. You should be able to get your tax back a year earlier than you would have had it anyway, but your relationship with the auditors is likely to be significantly damaged. They have a professional reputation to maintain and protect, which is likely to be damaged by a client withdrawing and resubmitting accounts they had previously signed off, and if it's not material (ie they still regard the original accounts as having been perfectly adequate) they might well view it as unreasonable that you should put them in that position. Your position of course would be that it is material to you and that your action is therefore not unreasonable - they might or might not see that, but either way they won't like it. Is that worth c.£25k to you?

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