Mislead by self assessment helpline

[IanIan]

Hi there,

When I was first filling in a tax return in 2001 I rang the help line and asked whether it was the date of the invoice or the date that cash was exchanged that was significant for accounting. i.e. cash or accrual based accounting.

The guy on the phone was adamant that it didn't matter when the invoice was sent out, it was when the cash was exchanged. I also asked the same question the following year and received the same answer.

But it appears that, ironically enough, in 2001 cash based accounting was abolished...

Abolition of the cash basis: ICAEW note on ‘true and fair view’

So I've been doing cashed based accounting all these years. I looked over my records and I think there's only been three invoices where the date on the invoice was in a different tax year to the year that I received the cash and the interest on a late payment would have been possibly under £15.

But what a blunder!

Ian.

[Clare@InTouch]

The people on the helplines are not always able to give the correct answer, and this was more of an accounting question than a tax question which probably confused them even more. As long as the tax you've paid overall is the same then there shouldn't be a problem if HMRC investigate. It's always a good idea to get a name and reference when you call them, that way you've got a record of where you got your facts from (not that they'll be held to it a lot of the time).

Incidentally, there are rumours that cash accounting could be back in action soon.

[philip@wellwoodhoyle]

In fact, neither cash, nor invoice, accounting is correct. You should account for the value of work done in each year, which means that you need to adjust for work done in one year but invoiced in another, i.e. if your invoice is for work that straddles your year end, you still have to provide for the proportion done before, even if you didn't invoice until after. Same with expenses and overheads, hence the need for accruals and prepayments. But, yes, it's not really a tax issue at all. Tax returns require accounts to prepared under the accounting standards, so it's the accounting standards you have to comply with, not tax rules, hence why lots of tax office staff don't give the right advice for these types of question.

[IanIan]

That's really interesting WHA. I'll take a look at the accounting standards.

I wonder what degree of precision that tax people require. So if they see an invoice right at the beginning of the year, they're going to be saying, '...you must have done that work the year before! We're going to have to charge you interest'.

Tax returns require accounts to prepared under the accounting standards, so it's the accounting standards you have to comply with, not tax rules, hence why lots of tax office staff don't give the right advice for these types of question.

That's one bit of advice they should be trained to offer.