Apologies if I wasn't clear. This year we moved to the standard rate, but it would be the same problem if we just applied the higher correct FRS rate whilst still on the FRS scheme.
For example, in the prior year period say we had £100 of sales. FRS VAT inclusive sales are therefore £120, and if we applied the wrong rate (say illustratively 10% vs. 16.5%) then we paid 6.5% x £120 (£7.80) VAT too little. Of course this £7.80 is subject to CT @ 19% in the period, which was also paid in HMRC's favour as part of the error.
When correcting VAT, we simply made a box 1 adjustment in the current reporting period and made a balancing payment of £7.80 in addition to the correct amount of VAT due for that period, we didn't reduce sales. Nothing has yet been done to correct CT.
However using our example this means we paid £1.48 (£7.80 x 19%) corporation tax too much last year. My question is simply should we correct the prior year and resubmit last year's CT calculation, or reduce CT in the current year to claim it back?
My answers
Apologies if I wasn't clear. This year we moved to the standard rate, but it would be the same problem if we just applied the higher correct FRS rate whilst still on the FRS scheme.
For example, in the prior year period say we had £100 of sales. FRS VAT inclusive sales are therefore £120, and if we applied the wrong rate (say illustratively 10% vs. 16.5%) then we paid 6.5% x £120 (£7.80) VAT too little. Of course this £7.80 is subject to CT @ 19% in the period, which was also paid in HMRC's favour as part of the error.
When correcting VAT, we simply made a box 1 adjustment in the current reporting period and made a balancing payment of £7.80 in addition to the correct amount of VAT due for that period, we didn't reduce sales. Nothing has yet been done to correct CT.
However using our example this means we paid £1.48 (£7.80 x 19%) corporation tax too much last year. My question is simply should we correct the prior year and resubmit last year's CT calculation, or reduce CT in the current year to claim it back?
@wanderer I would like to understand both the accounting treatment and tax treatment. I am not a finance professional.
@david Yes, the laptop was faulty, the dispute resolution process issued us a refund and we did not have to return it.
@lionofludesch. I came hear to learn from the community.
@wanderer I would like to understand both the accounting treatment and tax treatment. I am not a finance professional.
@david Yes, the laptop was faulty, the dispute resolution process issued us a refund and we did not have to return it.
@lionofludesch. I came hear to learn from the community.
@lionofludesh. Yes, it's material.