The Pandemic has brought up a number of common accountancy compliance questions. For example, how can loans, grants and furloughed payments be recorded correctly for accounting purposes? Or, what are the implications of the changes to rules about deferred VAT or personal tax payments? Here, I’ve outlined a best practice approach.
- Recording Furloughed Payments
For transparency usually wages, National Insurance and pension payments are recorded separately for accounting purposes in Profit & Loss accounts. However, the Government has supplied furloughed payments as a lump sum. Therefore, for simplicity we are advising our partners to include these transactions as a single line item in the ‘other income’ section of their accounts. In this way it can be identified easily.
- Recording Self-employed Support Scheme Grants
Self-employed people were eligible for two grants to support them during the Pandemic. These grants should be kept separate from P&L sheets, especially for LLPs or partnerships and should not be recorded within the business’s accounts. These grants are taxable and will need to be reported on the 2020/21 self-assessment tax returns. However, there are no clear guidelines yet on how or where to enter these information to report it to HM Revenue & Customs.
- Balancing Bounce Back Loans
It is common for people to believe that loans should appear in the accounts as ‘extra income’, but this is incorrect. Bounce Back loans or CIBILs should be treated just like a normal loan for accounting purposes. They should be recorded in the balance sheet of the business as a liability, rather than appear in the Profit & Loss account.
For a Bounce Back loan, no interest is due for the first 12 months and so no interest or payments need to be recorded until it is starting to be paid back. Payments will then simply go against the liability in the balance sheet and business will be able to get tax relief on the interest charged.
- Managing Deferred Payments
The Government recently announced that VAT payments and personal tax payments could be deferred. However, this still means they need to be paid in the future! Therefore, we are advising our partners that if they can afford to pay their VAT or personal tax payments, then they should do so or they could be faced with a substantial VAT bill in March, or in January when the next personal tax payment needs to be made.
- Limited Company Accounting
Normally, limited companies have nine months to submit their accounting information to Companies House and pay over any corporation tax due. In June 2020 Companies House extended the filing deadlines which fall between 27th June 2020 and 5th April 2021 by three months. However, it is important to remember that the corporation tax payment date remains exactly the same as before. Corporation tax still needs to be paid nine months and one day from year end to avoid interest charges.
The Pandemic has certainly added one or two complications to normal accounting practices so if you are unsure how to record any information, our best advice is to seek advice! At d&t our friendly franchise-focused team are always on-hand to answer any questions to ensure our partners can comply as necessary.