Top five investigation hotspots

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Steve Collings outlines the areas typically targeted by HMRC accountants in financial statements.

During the course of a tax investigation inspectors may query the accounting treatment of certain points in the financial statement. In certain cases, the inspector will refer the matter(s) to the revenue accountants who will then interpret the relevant accounting standards. Where HMRC accountants disagree with an accounting treatment, they will then provide details of the relevant standards or legislation. Revenue accountants also inform tax inspectors whether, in their opinion, financial statements comply with UK GAAP.

Accounting policies

Under FRS 18 and FRSSE, entities are required to adopt accounting policies that are most appropriate to its particular circumstances...

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About Steven Collings


Steve Collings, FMAAT FCCA is the audit and technical partner at Leavitt Walmsley Associates Ltd where Steve trained and qualified.


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22nd Mar 2010 09:43

Good article

I will incorporate this into my completion checklists


Winchester Accountant


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22nd Mar 2010 13:51

Very useful thanks Steve

The "provision" aspect is one that always gets the client going and trying to find their paperwork.  We had our first ever "compliance check" over related parties two months ago, it was satisfied by a simple list to back up the return but was still a wake up call.

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By Anonymous
22nd Mar 2010 13:53


excellent article, can now show my clients I'm not dreaming these things up!

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22nd Mar 2010 14:14

Bad debt provisions


Thanks for the article.

I have heard it mentioned on several courses in the last year or so that there is now no distinction between specific and general bad debt provisions for companies. (Unincorporated business are still on the old rules)

The speakers have stated that, since FA 2005, any impairment for trade debts is now within the loan relationship rules and therefore any provision (whether specific or general) is allowable unless it is to a connected party.

My notes from a Finance Act 2009 course by Mercia state the following "Where a company writes off a money debt that has arisen in the course of a trade, or a UK or overseas property business, the debit in the company's accounts is now brought into the ambit of the loan relationship rules. The result is that where the creditor company is unconnected with the debtor, the creditor will get relief for the impairment either as a trading expense or as part of a non-trading loan relationships deficit. HMRC would also regard relief as being available if the debit arises from the creditor having formally released the debt"

Do you have any thoughts on that?

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22nd Mar 2010 14:38

Fab article
Steve another fantastic article. Thanks for that we will be updating our procedures accordingly.

Thank you.

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By Anonymous
24th Mar 2010 09:17

Good article to show some stroppy clients

I have one question about the very last paragraph...

If the director/shareholders "expect" a dividend every year is the treatment the same as the "expectation" of a salary bonus?

In other words can my clients prepare their March year end accounts in June and back-date quarterly dividends which they have drawn but not done the paperwork for when the accounts are done as they have always done it that way and have an "exspectation" that this will happen each year?



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25th Mar 2010 21:50

Re Dividends

Re the dividend expectation.  I can definitely see your point in relation to my article, however FRS 21 prohibits the backdating of dividends (SSAP 17 used to allow this, but FRS 21 explicitly prohibits such).  Dividends should be declared before the balance sheet date, and the necessary paperwork drawn up to corroborate the dividend in order for the dividend to be included in that year's financial statements. 

Apologies for my delay in replying to your thread as well.

Best wishes


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25th Mar 2010 22:03

Ref Loan Relationship Rules

Hi Peter,

My understanding of Section 42 FA 2009 is that if a creditor company is connected with a debtor company (as in, say, a group structure) and the creditor writes off the debt then no tax charge arises on the debtor - conversely no tax relief is given to the creditor. 

Your Mercia notes refer to situations where the two companies are not connected and where creditor writes off a debtor balance, creditor will get tax relief.

As my article mentions (and as has been asked of me quite recently), bad debt write offs are generally queried by HMRC where they are significant.  If they form an aspect enquiry you can lay odds the Inspector will want evidence that the debt is bad, such as correspondence from the Liquidator or other forms of documentary evidence to prove the debit in the profit and loss account.

Again, I apologise for the delay in replying to your query (long week!!)

Best wishes


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25th Mar 2010 22:04


Just wanted to thank you for your positive feedback on this article.   It is much appreciated.

Best wishes


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08th Aug 2013 17:26

Loan Interest

What would be the position regarding Loan Interest and FRS12 ?

A loan would most probably meet all three criteria, namely :

 - A legal obligation

 - An outflow of economic benefit required to discharge the obligation, and

 - The amount of the obligation can be measured reliably (in may cases to the penny)

Does FRS12 permit the total interest charge for the loan term to be relieved against profits in the first year of the loan?

What impact, if any, does UK GAAP have?

How would HMRC react ?

Thanks for any help




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