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Tax treatment of prior period adjustments

Error identified in accounts - tax treatment of this

I have identified an error in a set of accounts that was made the previous year. The error has been corrected this year and I understand that I need to restate the prior year figures in the current year accounts as per FRS105.

My query is what to do about tax - the client effectively overpaid Corp Tax last year due to the error, but will underpay it by the same amount this year upon correction of the error i.e. net effect on CT is zero over the 2 years. Should I go back and correct the error in the prior year CT600, or should I just restate the p.y. figures in this years accounts and not amend the tax return? Thoughts appreciated please

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13th Dec 2018 18:02

How much are we talking about here?

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to Wanderer
13th Dec 2018 18:12

£10k turnover (on total t/o of £150k). Tax overpaid last year (due to overinflated sales) approx £2k (presumably not spotted because turnover very much in line with year before, even though overstated by 10k). Correction in current year balances out tax so net effect over 2 years is pence

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By NH
to southgirlaccountant
13th Dec 2018 18:48

What is the corresponding balance sheet adjustment?

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13th Dec 2018 19:59

Does the client have a view?

At that sort of level I'd be 50:50, it's easy enough to amend the previous year's CT600 attaching the current year's accounts but, if you decide to go with doing it all through a reduction in this year's profit, I suggest it's noted properly, say by attaching a note with the submission?

I have some clients who would insist on the former, and others who would let me decide.

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to Paul Scholes
14th Dec 2018 08:00

Good point - I guess I wanted to go to the client and say an error has been found and this is what i'm going to do about it, but i'll offer them both options of correction. To be honest, you're right - it won't take long to amend the p/y CT600 so I think that should be the preferred option as then everything will be correct in the correct period. Thanks for advice

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