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financial money management: limited company books and records: trade debtors and creditors

22nd Jun 2011
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Turnover in any financial statements (like all other figures) must be prepared on an accruals/prepayments basis irrespective of the vat scheme that is in use by the company.  Otherwise different schemes could be used to help manipulate sales/expenses figures to the detriment of the Exchequer leading to the company being subject to an HMRC enquiry.

This should always ordinarily be the figure of sales in the accounts irrespective of whether the money has been received. (Conversely, figures can be brought into the accounts for money not paid to counteract the turnover that is creditors (where invoices have been issued to the company and not paid) and accruals (expenses incurred but no invoice rendered to the company at 31102010 eg accountancy fees.)

The thought struck me that perhaps you can trail through the first one/two months of expenditure in the following accounting year 31122011 that is January/February 2012 ( that is through the company bank statements) to find any purchases invoices rendered to the company before 31122010 but paid after date.  These can be legitimately entered as expenditure in the financial accounts 31122010 as trade creditors. There can also be subcontractors for which you have vouchers before 31122010 but which have been paid in the following weeks.  Please check (however, subcontractors are normally paid at the end of the week and so you may have only one/two weeks to declare as creditors being 01-15 January 2012.

The company does have a particular problem in that quite a lot of work is completed before invoices out to clients.  Perhaps the company could alter its terms of trade and always invoice out at say, £10000 intervals and instead of writing ‘must be paid within 28 days instead have a 2.50% discount for payment within 14 days.  The company issued a sales invoice for £100000 (G20) and this is too large and could have been invoiced out in smaller amounts receiving the money far earlier.  Just a thought, being money management control.  However please note that the corporation tax is not payable until 9 months after the year end that is 30092011and so by then the money should have been received: but if not the company can write off in the accounts as a bad debt and re-entered in the ledgers as sales once it is received.

I would finally draw your attention to the following:

Financial accounts as presented to Companies House /HMRC Corporation Tax must be prepared on an accruals/prepayments basis and this is irrespective of whatever vat scheme is in use.

You chose to use the cash basis for vat because it was best for you.  I agree.  However the accounts must be drawn up and the figures arrived at in these accounts (and the corporation tax thereon) on the basis as if you were on the normal vat scheme of outputs versus inputs with the balance to pay/reclaim so that turnover/expenses are the same as presented in the accounts under whatever basis of vat scheme that the company is using.  If the company is owed £100000 as detailed in field P21 of the sales day book then this must be the figure in the balance sheet for trade debtors.

Companies House:

what is important to them is the statement of assets and liabilities only and expressed as including vat that is gross.

HMRC Corporation Tax:

Net sales invoiced out to customers (irrespective of HMRC Vat cash basis/scheme basis/normal basis  etc.) less expenses incurred (accounting for creditors/accruals) irrespective of the vat scheme used that is cash basis/normal basis/scheme basis etc.  HMRC Corporation Tax has nothing to do and does not recognize HMR Customs and Excise way of doing things but instead relies on traditional methods of preparing accounts and the culpable corporation tax due thereon. If sales invoices are rendered but not paid at the time that the tax is due then it is correct accounting practice to revisit the accounts, enter as a bad debt and so negate the tax due on the sale. This puts the company back in the same position (tax wise but not business wise) as if the sales invoice was never rendered.  If the sales invoice is subsequently paid then the sales invoice is rendered again and included in sales the following year.

The above prevents unscrupulous traders from reclaiming vat on purchase invoices (your sales invoices) but never paying them.


I hope that this helps, but if not please let me know today and I will reply further to any issues and concerns that you may have.



My regards


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