Out of pocket expenses timing

[Rafd]

A quick question: As a director, is it possible and legitimate to defer claiming out of pocket expenses for a month or so? I want to maximise profit before April in order to pay max dividends possible as I am under my dividends allowance for this tax year.

[northernladuk]

This help?

How contractors should process contracting expenses

I'd suggest speaking to your accountant as there maybe other options available to you that you are not aware of.

[matzie]

My understanding is that it's the date the expenses were incurred that matters, not the date they are repaid. Read up on - or ask your accountant about - 'accruals'.

[Rafd]

My understanding is that it's the date the expenses were incurred that matters, not the date they are repaid. Read up on - or ask your accountant about - 'accruals'.

I'm a bit of a novice with accounts but have been told that dividends can only be paid from profits. If I hold off claiming my expenses until after the dividend then this affects my 'apparent' profits at the point the divi is paid?

[northernladuk]

I'm a bit of a novice with accounts but have been told that dividends can only be paid from profits. If I hold off claiming my expenses until after the dividend then this affects my 'apparent' profits at the point the divi is paid?

And at that point you should be picking the phone up to your accountant and asking them.

[Rafd]

And at that point you should be picking the phone up to your accountant and asking them.

If everyone did that most of this forum wouldn't exist.. you'd have to get a new hobby.

[ASB]

A quick question: As a director, is it possible and legitimate to defer claiming out of pocket expenses for a month or so? I want to maximise profit before April in order to pay max dividends possible as I am under my dividends allowance for this tax year.

Sort of.

It is entirely up to you when you claim and pay your expenses. Though if they are excessively old then your accountant may be querying etc....

However, to expand on matzies point the accounts should be prepared to certain standards (that doesn't mean they are all the same but the polices adopted should be consistent). They should also paint a "full and fair" picture.

So the question is how you generally deal with accrued, but not yet formally known liabilities. Generally this is by accruing the costs and adjusting.

Thus if you have a couple of grands worth of expenses in the pipeline these should be shown as an accrual in the accounts.

You might want to chat to your accountants. Or you might want to just forget to claim them for a while.

Also....

Don't forget that work in progress has a value and should be accounted for as an accrued income. So, if it just so happens that you have some work done but not invoiced for say £5,000 that can (and should) be shown as income.

Accounts should always be prepared on an accrual basis not a cash received basis.

[WordIsBond]

Don't forget that work in progress has a value and should be accounted for as an accrued income. So, if it just so happens that you have some work done but not invoiced for say £5,000 that can (and should) be shown as income.

Accounts should always be prepared on an accrual basis not a cash received basis.

The value of the work in progress is debatable, though.

One view is that it should be accrued at the invoice value. The other view is that, if it hasn't been invoiced yet, it should be accrued at the cost value. If you are going to use a value for work in progress to determine your dividend, you'd best run this one by your accountant. It can make a big difference.

[ASB]

The value of the work in progress is debatable, though.

One view is that it should be accrued at the invoice value. The other view is that, if it hasn't been invoiced yet, it should be accrued at the cost value. If you are going to use a value for work in progress to determine your dividend, you'd best run this one by your accountant. It can make a big difference.

Well the cost of sales should be accrued at the cost expended (which in this sort of contracting business is likely to be modest - expenses plus salary). The revenue should be accrued at the anticipated realisable value base on the percentage completed. There is an accounting standard to this effect which should normally be adopted.

However, as always, it is not that simple. Perhaps it is a "problem customer" who has a habit of not paying etc, this needs to be factored in.

Equally given the way most operate it is probably nor particularly material anyway. But it was for me and the way I operated. Multiple fixed price contracts invoiced on completion was often the case for me.

HMRC take on it is here

BIM33165 - Stock: valuation: professional work-in-progress: general principles

[Rafd]

Interesting stuff - thanks for the answers! Sounds like there is nothing stopping me from from failing to lodge the expense claims until the following month. I wonder how far backdated one could reasonably go?