I have a client with a 31st March year end who is a tour operator providing educational tours for schools and recognises revenue on the basis of departure date which is obviously a widely accepted basis.
However as a result of Covid-19 the tours planned for departure between April and October 2020 are not taking place. The client has received around £270k in respect of these tours which have not been refunded and so the question is should the revenue be recognised in the accounts to 31 March 2020 as an adjusting event on the grounds that the condition (Covid) existed at the reporting date and as a result of lockdown it was subsequently known after the reporting date that these tours would not take place ? or should the revenue continue to be recognised in the accounts to 31 March 2021 when the tours planned to depart ?
If the former, this will significantly increase the trading results for the year giving rise to a substantially accelerated Corporation Tax liability, and in addition to this the annual TOMS VAT adjustment will be substantially higher on which the VAT rate is calculated and adopted for the following 12 months. It doesn't seem reasonable that an inflated rate should be imposed for the following 12 months as a result of a pandemic which has cripled many businesses by potentially recognising the revenue which would ordinarily have been included in the 2021 accounts.
Obvioulsy the tax and VAT consequences should not influence the correct accounting treatment but we are dealing with an unusual circumstance and something which accounting practices never intended to experience.