Reply to: Assign Income to Accounting Year Received

[ContrataxLtd]

Is it still the case that extending the accounting period has to be done before the end of the period ? If so then the OP needs to be fairly quick if they wish to do so. AA01 can be submitted online now I believe though.

You can generally change the year end at any point, provided the normal filing deadline hasn't already passed i.e. the accounts aren't already late. However, you can't normally extend the year end more than once in a 5 year period.

Martin
Contratax Ltd

[ASB]

Perhaps yes, it just depends on when the previous contribution was made and when the next is to be made. If he wants to stick another £40k in to the SIPP in April 2017 then shortening is probably the way to go, if he wants to stick £40k in once the last invoice is paid then extending would be the way to go. Either way there should be something that can be doing to get the right outcome.

It might be a bit of extra work to avoid potential red flags but for me it would seem worth it as no one likes HMRC sniffing around, especially in the current climate. There is always the chance that they deny CT relief on the basis the contribution wasn't for the purpose of trade as it's caused a trading loss and then you get stuck having to argue the position with them.

Martin
Contratax Ltd

Is it still the case that extending the accounting period has to be done before the end of the period ? If so then the OP needs to be fairly quick if they wish to do so. AA01 can be submitted online now I believe though.

[WordIsBond]

Thanks, Martin. As usual, you make a lot of sense.

[ContrataxLtd]

Hi, Martin, I was writing mine when you posted this. I thought his goal was to get the income into the next tax year, since he won't be working then. If that's the case, isn't shortening this tax year the better solution? I'm not sure the rules on how far that can be done retroactively, but if he shortened to, say, the end of February, he'd get three months of income from this year into the succeeding tax year.

Seems to me a lot of trouble, though, to avoid something that is perfectly legal just because it might raise red flags. Unless OP has other issues of concern so really doesn't want scrutiny.

Perhaps yes, it just depends on when the previous contribution was made and when the next is to be made. If he wants to stick another £40k in to the SIPP in April 2017 then shortening is probably the way to go, if he wants to stick £40k in once the last invoice is paid then extending would be the way to go. Either way there should be something that can be doing to get the right outcome.

It might be a bit of extra work to avoid potential red flags but for me it would seem worth it as no one likes HMRC sniffing around, especially in the current climate. There is always the chance that they deny CT relief on the basis the contribution wasn't for the purpose of trade as it's caused a trading loss and then you get stuck having to argue the position with them.

Martin
Contratax Ltd

[WordIsBond]

Hi Cirrus,

I'm not sure when you are wanting to make the next £40k SIPP contribution but you may be able to extend your year end to make it easier to make the contribution and avoid a loss carry back situation.

That said, I've inferred that you'll be wanting to make the contribution next April so the above probably wouldn't help.

Martin
Contratax Ltd

Hi, Martin, I was writing mine when you posted this. I thought his goal was to get the income into the next tax year, since he won't be working then. If that's the case, isn't shortening this tax year the better solution? I'm not sure the rules on how far that can be done retroactively, but if he shortened to, say, the end of February, he'd get three months of income from this year into the succeeding tax year.

Seems to me a lot of trouble, though, to avoid something that is perfectly legal just because it might raise red flags. Unless OP has other issues of concern so really doesn't want scrutiny.

[WordIsBond]

perhaps you're over thinking this.

What if the services you are delivering aren't completed till the 1st June? You couldn't invoice before then anyway. Problem solved.

Perhaps you're under thinking this.

As ASB noted above, you have to properly value "work in progress" as having accrued.

OP: Your accountant only gets the transaction list, but does he not ask about work in progress at the end of the year? If not, he's remiss....

You could presumably change the end of your company's tax year and bring it forward. Seems unlikely to be worth it, though. I'd just make the pension contribution, generating a loss for next year, and carry it back. You aren't doing anything wrong, though I wouldn't start any MVL proceedings or anything like that until a seemly period of time after you make the payment. Are you retiring, going permie, resigning from the human race? Are you closing your company or just putting it to sleep for a while while you stimulate the tourist economies of Mediterranean countries?

It's easy to justify if the company stays open, if you close it down the next day then they could come back and argue the payment served no business purpose.

[ContrataxLtd]

For VAT you can choose to pay according to what money you actually received during the quarter in question rather than when such flows were invoiced, so for the last week's work in a month you could assign that to the month you worked or the following month when they paid you (as long as you are consistent).

As my accounting year starts in June, and I intend not to be working in June onwards, it would suit me to have the last May invoice to be assigned to next year's accounts on the basis it didn't get paid until into the new year. This would make it easier for me to pull another £40k out of the company into my SIPP and get £8k CT relief.

Do you know if that is allowable? I could see they wouldn't like that because unlike VAT you have scope to reduce CT. Bear in mind my accountant only gets my transaction lists so he wouldn't automatically know which year the payment was invoiced.

Hi Cirrus,

I'm not sure when you are wanting to make the next £40k SIPP contribution but you may be able to extend your year end to make it easier to make the contribution and avoid a loss carry back situation.

That said, I've inferred that you'll be wanting to make the contribution next April so the above probably wouldn't help.

Martin
Contratax Ltd

[missinggreenfields]

perhaps you're over thinking this.

What if the services you are delivering aren't completed till the 1st June? You couldn't invoice before then anyway. Problem solved.

If all the work is completed on June 1st then that's fine. If not, then you would have to account for the portion of work that was done in the company year.

[Lance]

perhaps you're over thinking this.

What if the services you are delivering aren't completed till the 1st June? You couldn't invoice before then anyway. Problem solved.

[ASB]

The trouble is you have zero turnover, you pay out £40k and then you ask for £8k CT refund. My accountant felt such situations may get you noticed by the Revenue - better to have some turnover to make it look like an active, trading company.

However I keep thinking if we ever got to the point that they said "You shouldn't have done this", it wouldn't make any difference because I'm not actually avoiding any tax. The fact they were asking me would mean I was under the spotlight, which I was trying to avoid, but it wouldn't be this that was the problem. It would be IR35...

Well yes. But I am assuming your may invoice is for somewhat less than 40k so you are going to have the issue to a certain extent anyway.

edit: What is not particularly clear is whether you have stopped trading or not. Whether from June that's it and going forwards you are just going to be extracting the funds or whatever, or whether this is a temporary thing.

In the former case you might struggle with getting CT relief at all since it is probably not for the purpose of trade given there is no trade (I'm not certain on how much carry back if any is allowed). Obviously you can commit a few technical offences of false accounting to "move" a portion of this years turnover into next year to give the illusion of trading. But it probably won't really pass any scrutiny should that occur.

In the latter case you will be making money later in the financial year ? So you will be ok with the pension contributions. If cautious don't make it until you have actually generated the turnover later in the year.

Hingsight s a wonderfult thing, but if you had planned ahead a bit more you could have paid 40k into the sipp in April - this year - but dstill have that in this trading year which would be much less hassle (though profits still need to be apportioned across the tweo financial years pro-rate and this would have been much more usual).

[ASB]

If you're already on cash accounting then it's fine. Otherwise not. You can't change your accounting practices once you've started (easily), and I believe there are restrictions on who's allowed cash accounting.

Unfortunately one of the major restrictions is any incorporated body.

the cash basis introduced in fa 2013 is fairly restricted.

[missinggreenfields]

If you're already on cash accounting then it's fine. Otherwise not. You can't change your accounting practices once you've started (easily), and I believe there are restrictions on who's allowed cash accounting.

https://www.gov.uk/simpler-income-ta...use-cash-basis

If you're operating via a limted company, you can't use cash accounting - so I guess that puts an end to the idea.

[NotAllThere]

If you're already on cash accounting then it's fine. Otherwise not. You can't change your accounting practices once you've started (easily), and I believe there are restrictions on who's allowed cash accounting.

[Cirrus]

In any event you should still be able to make the pension contribution. It will just affect the time at which ct relief is obtained.

The trouble is you have zero turnover, you pay out £40k and then you ask for £8k CT refund. My accountant felt such situations may get you noticed by the Revenue - better to have some turnover to make it look like an active, trading company.

However I keep thinking if we ever got to the point that they said "You shouldn't have done this", it wouldn't make any difference because I'm not actually avoiding any tax. The fact they were asking me would mean I was under the spotlight, which I was trying to avoid, but it wouldn't be this that was the problem. It would be IR35...

[ASB]

No it is not allowable. Accounts need to be prepared on an accrual basis and work in progress shoul he valued appropriately.

Though i am certain what you describe happens regularly. If you haven't invoiced then who is to know...

In any event you should still be able to make the pension contribution. It will just affect the time at which ct relief is obtained.