Forum

• # 94161
• Wed 09 Oct 2013 02:30 PM

Dear Friends,

What will be the accounting entry for a corporation tax refund of £1000 received for 2011 in current year 2013. 

I have not anticipated this refund and there are no provisions or tax receivable showing in current year books related to prior year.

All prior year tax provision are cleared from current years books.

Current situation

Current year 2013 tax provision £3000 Credit in Balance sheet Dr in P & L

Please help with the accounting for £1000 received from HMRC for 2011 tax refund

I can see the debit will be in the Bank but am not sure about credit to which account??             

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• # 94168
• Wed 09 Oct 2013 07:05 PM

Hi Ruchi,

Your credit will be to a non trading income code.
It is a miscellaneous receipt, a little like deposit interest received, except that a tax refund, by its nature, is not taxable.
Your accountant should be able to confirm that the value is correct.
Do not net this £1,000 against the current year provision of £3,000, as the two values relate to different periods, and are probably different in nature too. The refund is against total trading in a closed period, whereas the provision will be based upon a dividend paid in 2013.

Hope this helps.  

• Kind regards,
  PeteL  

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• # 94180
• Thu 10 Oct 2013 08:17 AM

Petel

Thank you, but still not sure to put it through as other receipt!

If you consider it like an accruals - when we accrue something in profit and loss in one year we normally reverse the over / under accruals in the same account next year based on the actual outcome of the accrual amount

Say for example - audit fees for year 2011

Dr audit fees               1000
Cr Audit fees accruals         1000


Actual fees 2012 for 2011 is 800


Entry in 2012


Accruals 1000     

Bank                  800

Audit fees           200 P&L charge


on the same principle  -


Corporation tax 2011


Dr Corp tax P&L 2000

To Corp tax B/ sheet  2000



Corp tax paid 2012


Corp tax Balance sheet 2000

To Bank                            2000


Now here comes 2013 when we have the refund 1000 back from HMRC


Bank 1000


Corp tax P & L 1000


Based on the accounting principle- we have over stated 2011 corporation tax by 1000 and understated profit for 2011 now to correct  this in 2013; we need to offset this in profit and loss account to nullify the effect of 2011 over stated tax and understated profit!

Any thoughts ??

            



Edited at 10 Oct 2013 09:05 AM GMT

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• # 94184
• Thu 10 Oct 2013 09:12 AM

Your rational is correct for revenue items traded in the P&L, but not for corporation tax, which is an appropriation of the profits arising from that report.
I would recommend contacting your accountant at this point. Only bookkeepers with a level 4 certification should be handling CT transactions unsupported.

• Kind regards,
  PeteL  

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• # 94205
• Thu 10 Oct 2013 08:09 PM

Hi,

 I know that only level 4 can do CT, this is my self study notes scenario, nothing real life!

I will see if someone from the institute can help!

Thank you for your help and response , appreciated

Edited at 10 Oct 2013 08:10 PM GMT

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