Raising very late invoices and Corporation Tax treatment

[Lex]

Hi,

My company was dissolved due to me not filing accounts with companies house on time due to ill health. Due to illness I am also owed a substantial amount of money but unable to invoice from a previous contract that was carried out just before the company and even during the period when the company was dissolved (I was not aware it had been dissolved at that point). I was unble to get paid by them as the bank accounts were frozen.

I am now restoring the company and looking to pay back all the corporation tax due with any fines / interest etc.

Naturally, I am looking to minimise the fines I have to pay for the late returns but am unsure if I can invoice the outstanding money owed to me for the current tax period as obviously I have not yet been paid for the work I done previously.

I don't want to pay corporation tax for a period on profits that were not crystalised as at that point I had not received any money. Do you pay corp tax only on crystalised profits (ie profit in bank)?

Is it ok to invoice for the outstanding work and get paid now in the current tax period whereby I am not late for corporation tax and accounts or do I need to submit the invoices for the period when I did the work but didn't get paid and therefore pay corporation tax on profits that were not realised at that point?

The accountants I am dealing with have stated I shouldn't worry as corporation tax fines will be interest only but I have read up on the HMRC site and for very late returns (mine is) it will be a proportion of the corp tax that was due at the time. I am therefore concerned that the accountants are potentially offering me misleading information hence I am looking for second opinions on here.

Many thanks.

[northernladuk]

I do think you are making a mountain out of a molehill here. You have disregarded the accountants advice once already. You are also not thinking about this straight and still getting tripped over the closure element. The key, as already stated, is the company has continued to run as normal as if it hadn't been struck off. I am not sure how to explain it in any simpler terms. You cannot back date stuff, its been running as normal and periods have passed. Everything has to be accounted for as it was in that period. If you were due to invoice in that period you can't now. You have to invoice it now and account as such. Backdating invoices and trying to do CT based on monies not invoiced or paid in the time could land you in hot water. Close the periods with the situation it was and continue to chase debts/invoices as normal.

Good luck getting the invoices to the clients though. Payontime.co.uk have a lot of information about chasing late payment and commercial debts. There might be some info on there about your situation. Also SafeCollections post on here so drop them a line and they maybe offer some guidance about invoices this late and the legal situation.

EDIT : Ah, you say 'I was unble to get paid by them as the bank accounts were frozen.' so the invoice has already been raised, or will you be raising new ones? If it has been raised already it could fall in to a commercial debt situation which I am guessing would be much better for you than asking the client for money now.

[Craig at Nixon Williams]

Revenue should be recognised according to when you performed the work - not when it was invoiced or when the payment was received. Corporation tax is charged on profits irrespective of the company's cash position.

Interest will be charged by HMRC on the late payment of outstanding tax, however they will charge a penalty for the late submission of the return - the amount of the penalty will vary according to how late the return is.

Hope this helps!
Craig

[Lex]

Thanks for reply.

To be fair I have not disregarded the accountants advice just questioned it, and in the case of fines I appear right to have done so. I have not used this accountant before and so I am just seeking second opinions if the situation does not appear clear cut.

Regarding invoices, the agency knew I fell ill and was going to follow up to chase payment. I am going through my records and checking if I raised all the invoices or some of them or none of them. The point is the work was done all around the same time back then. It might be I raised some invoices but not all. Either way there is that money outstanding.

I am trying to do the exact opposite of trying to get in hot water with the revenue which is why I am getting other opinions too. I have more than enough stress on my plate without wanting to get into deeper trouble.

Thanks.

I do think you are making a mountain out of a molehill here. You have disregarded the accountants advice once already. You are also not thinking about this straight and still getting tripped over the closure element. The key, as already stated, is the company has continued to run as normal as if it hadn't been struck off. I am not sure how to explain it in any simpler terms. You cannot back date stuff, its been running as normal and periods have passed. Everything has to be accounted for as it was in that period. If you were due to invoice in that period you can't now. You have to invoice it now and account as such. Backdating invoices and trying to do CT based on monies not invoiced or paid in the time could land you in hot water. Close the periods with the situation it was and continue to chase debts/invoices as normal.

Good luck getting the invoices to the clients though. Payontime.co.uk have a lot of information about chasing late payment and commercial debts. There might be some info on there about your situation. Also SafeCollections post on here so drop them a line and they maybe offer some guidance about invoices this late and the legal situation.

EDIT : Ah, you say 'I was unble to get paid by them as the bank accounts were frozen.' so the invoice has already been raised, or will you be raising new ones? If it has been raised already it could fall in to a commercial debt situation which I am guessing would be much better for you than asking the client for money now.

[Lex]

Thanks Craig, that clarifies.

It is interesting that VAT is charged differently to Corp Tax based on whether I received the money or not.

As I have not received the money I have been told for VAT I can pay it to VAT man once I get it. However, for Corp Tax it appears I have to pay it even if I haven't received it.

If I don't receive the money for my outstanding invoices I will have paid too much corp tax, will I get a refund for this?

Why don't they make tax processes consistent? HMRC make me laugh when they say Tax doesnt have to be Taxing!

Thanks

Revenue should be recognised according to when you performed the work - not when it was invoiced or when the payment was received. Corporation tax is charged on profits irrespective of the company's cash position.

Interest will be charged by HMRC on the late payment of outstanding tax, however they will charge a penalty for the late submission of the return - the amount of the penalty will vary according to how late the return is.

Hope this helps!
Craig

[northernladuk]

Just out of interest, have you had the LTD restored and the money back in the bank and if so how long did it take and was it a long painful process?

Or is all this work a precursor to getting it reinstated?

Also have you spoken to HMRC about your situation? Surely there is a case here that you may not have to pay the penalties?

http://www.hmrc.gov.uk/online/excuse...d-deadline.htm

[Bellona]

It is interesting that VAT is charged differently to Corp Tax based on whether I received the money or not.
As I have not received the money I have been told for VAT I can pay it to VAT man once I get it. However, for Corp Tax it appears I have to pay it even if I haven't received it.

It depends on your accounting method :

Using standard VAT accounting you:
Pay VAT on any invoices you have issued, even if you have not received the payment from your customer

Reclaim VAT on any invoices you have received, even if you have not yet paid your supplier

Using the Cash Accounting Scheme, you:
Pay VAT on your sales when your customers pay you

Reclaim VAT on your purchases when you have paid your suppliers

Corporation Tax is due when the work is done because it is counted as accrued income on your balance sheet.



Interesting, maybe.
Confusing, a little.
Pain in the rear, definately.

But a basic principle that should be understood when setting up a Limited Company, and something that would have been explained (or clarified on questioning) when your accountant submitted your first accounts.

Is/was this your first year of trading ???

[Lex]

Hey,

Its all precursor work to get everything sorted. I phoned HMRC for Corporation Tax and the person just seemed rude and said send something in writing. I told them I am making you aware of my circumstances before you contact me as a proactive course of action. He just said put it in writing and we will get back to you. They don't seem very helpful as in offering any advice.

I am hoping to wrap the accounts up within next few weeks then apply for the company restore. Will then wait and see how quickly Treasury give my money back.

Thanks for the link regarding penalties. I will be forwarding my circumstances and medical details and see what they say. I am not expecting anything as I think they like to pick on the small man trying to run a business who run into trouble whereas they turn blind eyes to the massive corporations.

The stress levels are horrendous but I am getting there bit by bit.

Thanks.

Just out of interest, have you had the LTD restored and the money back in the bank and if so how long did it take and was it a long painful process?

Or is all this work a precursor to getting it reinstated?

Also have you spoken to HMRC about your situation? Surely there is a case here that you may not have to pay the penalties?

HM Revenue & Customs: What counts as a reasonable excuse for filing an online return late?

[Craig at Nixon Williams]

Thanks Craig, that clarifies.

It is interesting that VAT is charged differently to Corp Tax based on whether I received the money or not.

As I have not received the money I have been told for VAT I can pay it to VAT man once I get it. However, for Corp Tax it appears I have to pay it even if I haven't received it.

If I don't receive the money for my outstanding invoices I will have paid too much corp tax, will I get a refund for this?

Why don't they make tax processes consistent? HMRC make me laugh when they say Tax doesnt have to be Taxing!

Thanks

It sounds like your accountant has suggested using the cash accounting scheme for VAT, this will minimise the liability whilst the invoices remain outstanding.

If you cannot recover the money owed for the invoices then you can write them off as bad debts (once you are certain that they will not be paid) and the bad debt will be deducted from the profits which are charged to Corporation Tax - you will therefore get relief for these but not necessarily immediate.

Hope this helps!
Craig

[Lex]

Thanks.

Over what period can the bad debt be used. Eg if I have 10k bad debt, corp tax year 1 is 3k, year 2 is 3k, year 3 is 3k, year 4 is 3k, does this result in only paying corp tax for year 4 at 2k?

I will follow up with my accountant on this as he should be aware of this.

Thanks everyone for your help.

It sounds like your accountant has suggested using the cash accounting scheme for VAT, this will minimise the liability whilst the invoices remain outstanding.

If you cannot recover the money owed for the invoices then you can write them off as bad debts (once you are certain that they will not be paid) and the bad debt will be deducted from the profits which are charged to Corporation Tax - you will therefore get relief for these but not necessarily immediate.

Hope this helps!
Craig