Payment received in advance for service delivered two months later & tax return

Seaan

Hi all,

I have received a payment of £1000 in February 2014 from a client for a service I have to deliver (through my limited company) two months later (April 2014).

Is it fine if I declare this amount for my company return for 2014-2015 instead of 2013-2014 (I had just filed my the return to hmrc without this amount few days ago).

Please note, that as a director, I borrowed this amount since I did not have any income during the last year (2013-2014).

Many Thanks in advance.

Suarez

Yes you have done it correctly.

This is accrual accounting and your transaction is known as deferred income and should be shown as a liability on the balance sheet for the year end.

Seaan

Suarez wrote: »

Yes you have done it correctly.

This is accrual accounting and your transaction is known as deferred income and should be shown as a liability on the balance sheet for the year end.

Thanks but I am not sure there are not misunderstandings :
So did I make a mistake by not stating this amount as a liability in the Company tax and return for 2013-2014? If yes, how can I correct this mistake?

jacks_cf

Hi there,

You have done the right thing by not treating the £1,000 as income in your accounts in 2013/14. Instead it will be treated as income in the accounts for 2014/15 which is what is required in 'accruals accounting' (a techy way of saying only recognise income and expenses in the same set of accounts as when the actual activity happens).

The tax treatment mostly flows from your accounts and in particular from your profit and loss account. So the income won't be taxed in 2013/14 as its not in the profit and loss account - it's sitting as deferred income on your balance sheet. In 2014/15 when you do the work it will move off the balance sheet and be shown as income in the profit and loss account and taxed in that year accordingly.

To cut a long story short, there's no need to amend your tax return.

Hope that helps

Pennywise

jacks_cf wrote: »

To cut a long story short, there's no need to amend your tax return.

Maybe, maybe not.

Is the balance sheet right? I.e. is it shown as both a current asset and a current liability?

Part of the tax return is the balance sheet, so if the b/s isnt right then it should be corrected.

Also, the loan to the director needs to be declared (and s419 tax paid on it) on the loans to participators supplementary tax return schedule. (unless it's merely repaying earlier advances made by the director to the company). The loan also needs to be declared in the financial statements as submitted to HMRC and Co House also.