Company Year End / Divs etc

[philip@wellwoodhoyle]

You don't need to change the way you invoice nor the way your suppliers invoice you. What you do need to do is make adjustments (journal entries) in your final accounts (and therefore your corporation tax), to make sure that your income and expenses are put into the tax years that they fairly relate to, not the tax years in which the invoices were raised or that the monies were paid.

For example, if you have been doing a contract for say 8 weeks, 7 weeks of which are in 2006/7 and the eight (and invoice date) is in 2007/8, then you continue to invoice as previously, but 7/8ths (or a more accurate figure if you have accurate time/costing records) needs to go in your 2006/7 accounts and be taxed in the 2006/7 tax year.

As to your suppliers, you don't need to know when they did the work - if you are bringing in 7/8th of your income, then makes sense to bring in 7/8th of your suppliers bill (i.e. the "matching" concept) or again, you can be more accurate if you have more accurate/relevant way of matching your costs against revenue.

[ittony]

You don't need to change the way you invoice nor the way your suppliers invoice you. What you do need to do is make adjustments (journal entries) in your final accounts (and therefore your corporation tax), to make sure that your income and expenses are put into the tax years that they fairly relate to, not the tax years in which the invoices were raised or that the monies were paid.

For example, if you have been doing a contract for say 8 weeks, 7 weeks of which are in 2006/7 and the eight (and invoice date) is in 2007/8, then you continue to invoice as previously, but 7/8ths (or a more accurate figure if you have accurate time/costing records) needs to go in your 2006/7 accounts and be taxed in the 2006/7 tax year.

As to your suppliers, you don't need to know when they did the work - if you are bringing in 7/8th of your income, then makes sense to bring in 7/8th of your suppliers bill (i.e. the "matching" concept) or again, you can be more accurate if you have more accurate/relevant way of matching your costs against revenue.

Thanks for that WHA, most enlightening. Do you know how to treat it in the example I gave where some of the work was done on a speculative basis in a previous year and then sold to a client (with some customisation) in a subsequent year? Seems to me I could be forever allocating my profits across several tax years as I reuse work I have developed previously.

[philip@wellwoodhoyle]

Thanks for that WHA, most enlightening. Do you know how to treat it in the example I gave where some of the work was done on a speculative basis in a previous year and then sold to a client (with some customisation) in a subsequent year? Seems to me I could be forever allocating my profits across several tax years as I reuse work I have developed previously.

You don't have to be forever re-allocating income. At each year end, you have to use your judgement to make whatever provisions you feel are reasonable given the circumstances at that time. As for speculative work, you only need to bring it in as work in progress if there is a degree of certainty that it will eventually be billed and paid for - if there is any doubt, you are OK to leave it out.