One for an Accoutant
Discussion
Short summary first, so please bear with me:
I sold the goodwill in my Ltd company resulting in a hefty corporation tax bill
Skip forward to the next year and my intention was to get some of this tax back by posting a loss and getting my accountant to make a claim
This was done by making max employer contributions into 2 pensions (80k total)
Due to cashflow etc, these payments were sent out 7 days before the accounting year end (and this is shown via Sage accounts)
Due to post and the pensions providers processing speed these payments left the company bank account approx 4 weeks later, ie in the next company tax year.
My accountant states that he cannot use these 2 pension payments to increase the loss for the company tax year as 'tax relief can only be given on contributions that have actually been paid' (PTM043100) and the paid date is when it leaves the bank account not when the cheque is written and the Sage transaction posted.
As we are talking about 16k here, I thought i would ask the question prior to seeking advice from a tax accountant.
Your thoughts would be appreciated.
I sold the goodwill in my Ltd company resulting in a hefty corporation tax bill
Skip forward to the next year and my intention was to get some of this tax back by posting a loss and getting my accountant to make a claim
This was done by making max employer contributions into 2 pensions (80k total)
Due to cashflow etc, these payments were sent out 7 days before the accounting year end (and this is shown via Sage accounts)
Due to post and the pensions providers processing speed these payments left the company bank account approx 4 weeks later, ie in the next company tax year.
My accountant states that he cannot use these 2 pension payments to increase the loss for the company tax year as 'tax relief can only be given on contributions that have actually been paid' (PTM043100) and the paid date is when it leaves the bank account not when the cheque is written and the Sage transaction posted.
As we are talking about 16k here, I thought i would ask the question prior to seeking advice from a tax accountant.
Your thoughts would be appreciated.
This is an accounting issue as much as a tax issue. It's to do with timing and deciding into what accounting period a cost needs to be charged as an "expense".
Normally, the date applicable to a cost is normally the date the obligation to pay becomes due. In the case of "normal" expenses, this means the date of the actual invoice as provided by the supplier of the goods or services. The fact that the invoice may be paid some time after the year end date is not relevant. The obligation to pay was based on the date of the invoice - and that is the date which determines into which accounting period the expense or cost falls.
In regards to a pension contribution, there may not be an "invoice" in the normal sense but the same principle will applies i.e. the date at which the obligation to make the payment is the date that determines in what accounting period the cost is shown.
Based on what you are saying, you physically drew up the actual payments and dated them BEFORE the year end date. That certainly points to the cost being accountable in the year end the payments were dated.
Even if the payments weren't actually processed until after the year end date, that should not make a difference as in that case the payment is essentially an "unpresented cheque" i.e. the payer (you) made the payment before the year end date but the payee (the pension company) didn't cash the cheques until later. Unpresented or outstanding cheques are quite normal and it is not unusual for a business to have such outstanding cheques at the year end date.
The only time when I would be reluctant to include a payment of this type based on the payment date is when the client had drawn up cheques or a series of cheques - dated before the year end date - but then stuck them in a drawer and didn't issue them to the payee until after the accounting period end. I've seen some clients do this and it's a bit naughty.
Normally, the date applicable to a cost is normally the date the obligation to pay becomes due. In the case of "normal" expenses, this means the date of the actual invoice as provided by the supplier of the goods or services. The fact that the invoice may be paid some time after the year end date is not relevant. The obligation to pay was based on the date of the invoice - and that is the date which determines into which accounting period the expense or cost falls.
In regards to a pension contribution, there may not be an "invoice" in the normal sense but the same principle will applies i.e. the date at which the obligation to make the payment is the date that determines in what accounting period the cost is shown.
Based on what you are saying, you physically drew up the actual payments and dated them BEFORE the year end date. That certainly points to the cost being accountable in the year end the payments were dated.
Even if the payments weren't actually processed until after the year end date, that should not make a difference as in that case the payment is essentially an "unpresented cheque" i.e. the payer (you) made the payment before the year end date but the payee (the pension company) didn't cash the cheques until later. Unpresented or outstanding cheques are quite normal and it is not unusual for a business to have such outstanding cheques at the year end date.
The only time when I would be reluctant to include a payment of this type based on the payment date is when the client had drawn up cheques or a series of cheques - dated before the year end date - but then stuck them in a drawer and didn't issue them to the payee until after the accounting period end. I've seen some clients do this and it's a bit naughty.
This sounds like a significant transaction that might have been minuted at a board meeting? If the minute was dated on the day the payment documents were drawn up and referred to "payment being made immediately" then it would lend strength to treating the transaction in that period.
It would be wrong to retrospectively create minutes but.......
It would be wrong to retrospectively create minutes but.......
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