Invoices and company year dates

[BrandNewCUKUser]

Hi,

My company year has just ended and I have raised an invoice after the year end date, but for days worked during the year. My (big name contractor) accountancy firm wants to include that in the company return for the year just gone. I've previously been with another accountancy firm where the invoice date dictated which company year the turnover would be applied to.

The VAT period actually applies to the invoice date.

So, the question is, which is correct?

BrandNewCUKUser

[Clare@InTouch]

Your new firm are correct. An accrual should be included in the accounts for work carried out during the year which was invoiced later. It's a normal accounting concept - work in progress.

Next year it will be deducted from sales, so you're not taxed twice, it's just a timing difference.

[ASB]

As Clare says it's an accrual. Strictly work in progress should always be valued irrespective of whether it has subsequently been invoiced or not.

However, there is a question as to what it should be valued at. This depends upon the nature of the business and the work in progress. Consistency is appropriate. Some possibilities are:-

1/ The net realisable value, provided the recovery of the debt when raised is not in doubt.
2/ The cost of doing the work. You could argue this is zero. However I think the lowest acceptable valuation would really be be apportionment of salary and overhead into the number of days (what a faff).

There is a convention which suggests the lower of the 2 should be used. However, although using 2 does fit in with the recommended method it is perhaps tainted by the concept of "true and fair value".

A further issue is that work done under long term contract under the accounting standard should be valued to include the profit element of the work (in effect case 1 above). Whilst the contract might not be long term it is probably material and should be treated as such.

So, if you area typical contractor working on one contract at a time then wip should really be accounted for at year end in the year the work was performed.

If you work on multiple projects then a better case can be made for a lower valuation.

I think larger firms are more likely to take a more robust view towards the relevant standards, as you new accountants are. Smaller firms may tend towards not valuing it - it's a bit simpler.

Here is some guidance, but I'm not sure it is entirely current. It might help.

Stock: valuation: professional work in progress: general principles
Abolition of the cash basis: ICAEW note on ‘true and fair view’
Stock: meaning of: what are long term contracts

[BrandNewCUKUser]

OK thanks for the replies. Looks like it's a complicated area!