Discussion
I had two clients that went into liquidation last year both owing me a reasonable amount of cash.
Most of the relevant invoices were raised in my 06-07 accounts which of course have had the Corp Tax paid and accounts filed etc.
2007-2008 accounts beckon later this year and just wondering about the corp tax implication. If I had to write off say £1000 from 06-07 does this reduce my 07-08 liability by £200-ish ? Does any special procedure have to be followed? Can the corp tax become a refund (I think it may nearly get to that stage, the company raised very few invoices in 07-08).
Just wanted the PH view before I speak to my accountant.
Most of the relevant invoices were raised in my 06-07 accounts which of course have had the Corp Tax paid and accounts filed etc.
2007-2008 accounts beckon later this year and just wondering about the corp tax implication. If I had to write off say £1000 from 06-07 does this reduce my 07-08 liability by £200-ish ? Does any special procedure have to be followed? Can the corp tax become a refund (I think it may nearly get to that stage, the company raised very few invoices in 07-08).
Just wanted the PH view before I speak to my accountant.
If a debt goes bad, you are perfectly entitled to write it off in the annual accounts. In fact, the accounting concept of "prudency" almost forces you to make the bad debt write off as soon as it is recognised as a bad debt. Tax rules follow, wherever possible (there are notable exceptions) accountancy rules and the writing off of a bad debt in the accounts will generally be allowed and accepted as a legitimate business expense by HMRC.
They do not allow general provisions for bad debts however. Some businesses have a policy of writing off general percentages of their debts every year by providing a "general" provision. The Revenue only allow the write off of "Specific" bad debts.
So, in your case, it looks like you should have no problems.
Regarding the tax treatment, the write off will serve to reduce the profit in the year the write off is made. That, of course, will reduce the CT liability. No problems there.
If the write off turns the profit into a trading losss, the loss can either be -
offset against other income of the company in the same financial year
carried forward for offset against future TRADING profita
carried back one year for reclaim against last year's trading profit. This could, of course, generate a refund of some (or even all) of the CT paid in respect of last year's profit.
PS - don't forget to reclaim the Output VAT in the Bad Debts being written off.
They do not allow general provisions for bad debts however. Some businesses have a policy of writing off general percentages of their debts every year by providing a "general" provision. The Revenue only allow the write off of "Specific" bad debts.
So, in your case, it looks like you should have no problems.
Regarding the tax treatment, the write off will serve to reduce the profit in the year the write off is made. That, of course, will reduce the CT liability. No problems there.
If the write off turns the profit into a trading losss, the loss can either be -
offset against other income of the company in the same financial year
carried forward for offset against future TRADING profita
carried back one year for reclaim against last year's trading profit. This could, of course, generate a refund of some (or even all) of the CT paid in respect of last year's profit.
PS - don't forget to reclaim the Output VAT in the Bad Debts being written off.
Edited by Eric Mc on Thursday 29th January 10:18
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