Pegs

I would put the penalty throught the books to show on the P&L together with the annual return fee.

The interest will show on the P&L as an expense, the capital repayment aspect will reduce the amount shown on the BS.

P

Hi Peggy,

Sorry Phillip, got to disagree with you on this one.

imposed fines, penalties, interest and surcharges are NOT allowable expenses for tax purposes so may not be used in determining the profit for the year.

I would be interested to know how people handle this situation in Sage?

Correct on the treatment of the asset. The capital is a balance sheet item and the interest is in the P&L.

cheers,

Shaun.

I must admit, I would have thought that any penalties for late filing of tax returns, companies house should not have been offset against the profit and loss. However, I recently attended a HMRC limited company workshop and I got the impression that it could. Maybe I misunderstood.

Well this is a surprise to me, as I had always dealt with it the same way as Philip said earlier.

So how do you account for it in Sage or any other package for that matter,

Regards

Mark

Hi people,

I'm just not keeping up with the messages at all today. Sorry about that.

It's amazing which threads turn into debates isn't it!

the case law used by the revenue for this one is detailed in BIM42515.

The specifics of the cases are :

A fine incurred as a result of a trader's infraction of the law is not allowable per CIR v Alexander von Glehn Ltd [1920] 12TC232, as it is not incurred wholly and exclusively for the purpose of the trade.

Lord Hoffman, in the case of McKnight v Sheppard [1999] 71TC419, noted that the Court of Appeal in the von Glehn case was curiously inarticulate about why the fine was not money expended for the purposes of the trade."

He went on to note that, in his opinion, the reason related to the character of a fine or a penalty:

" Its purpose is to punish the taxpayer and a court may easily conclude that the legislative policy would be diluted if the taxpayer were allowed to share the burden with the rest of the community by a deduction for the purposes of tax."

The above does not apply to damages and that may be where the revenue were coming from in the meeting that Harps attended.

Damages are meant to be compensatory, rather than punitive and compensation is an allowable expense where a fine which is meant to be punitive is not.

I think that Sheila's right and the interest on the fine is actually a grey area that would need further clarification.

Right, just thrown that into the ball pit. Looking forwards to the replies.

Shaun.

It was an excellent question Peggy as it caused debate and showed different viewpoints from those of us that have been around a bit.

The debate that your question instigated has probably saved someone, whether one of the contributors or amongst the audience, from making a costly mistake. So many thanks for bringing the subject up.

The level of detail amongst the answers has probably given you some idea of the breadth of knowledge beyond the text books that we either carry around with us or know where to find. That as well may have opened some eye's as to what's actually involved in the career that they are embarking upon (sometimes I feel that I wasn't endowed with a big enough brain for this stuff!).

Thanks again Peggy,

Shaun.

Hi Harps,

I think that the main problem is that clients have difficulty determining where the work of a bookkeeper ends and that of an accountant begins.

Its certainly not helped by the fact that with certain qualifications bookkeepers can prepare accounts and in the current economic climate accountants are more than happy to have their practices do the work of bookkeepers.

I think that in order to keep clients you really have to know more than your competition which pretty much means that to work in bookkeeping you really have to be a low level accountant (no need to know about group accounts, derivatives, mergers and acquisitions, etc).

This means that rather than looking at ICB / IAB to be a self employed bookkeeper people should really be looking at AAT or CAT.

As for suggesting a book... Where to start! I've got eight billy bookcases (thank you Ikea) stuffed full of bookkeeping and accountancy books. You find that you start gathering them from Ebay and Amazon resellers or the end of year Waterstones sale.

Most referenced tend to be ACCA text books (both Kaplan and BPP although I prefer Kaplan).

This is one of the things that really annoyed me about the ICB in that they state that ACCA does not give you any exemptions from ICB exams and yet it was only one ACCA text book that got me 99% in Level I and 98% at level II (the book was the 2002 study text for paper 1.1 by BPP).

And of course, lets not forget the internet!

I've pretty much always got the HMRC website, AccountingWeb and the companies house website open in tabs. I also seem to be visiting Business Link a lot of late.

At the end of the day, nobody knows everything. Accountants may sound as though they do but they get it wrong as well... And anyway, if ever anyone did know it all HMRC and the ASB would just change it!

Right, that's me all waffled out for a bit. You can tell it's a training day today can't you as I'm desperately trying to do anything but training!

talk later,

Shaun.

Thanks Shaun for that info. I think I need to invest in a few more text books.

I started AAT and passed the foundation stage, but changed to ICB due to the working experience you needed for membership. As I have children to look after in the school holidays, I wanted something that would be more flexible, and gaining employment to get the experience was a huge concern at the time.

Do you know if you can gain the experience required by the AAT by being a self employed bookkeeper with ICB supervisory body but maybe getting the accountants of the 2 regular clients I have to vouch for me for the experience I am gaining? Hope you understand what I mean.



Harps.

Thanks Selmsley.

I have just gained two clients both wanting 1 day per week bookkeeping. Both clients are flexible during the holidays regarding the days that I work may vary which is why I decided the self employed route would suit better than being employed. Both have got into a pickle and their accountants are sorting the pickle out (thank goodness). I am then taking on the bookkeeping from the start of their new financial year with which I know I can call on the accountants to clarify any areas of doubt. I am only taking the records to trial balance and leaving the rest to the accountant for the annual returns and year and accounts etc. I am hoping that I will gain experience from this. Maybe 12 months down the line I will consider AAT and question whether this experience would count towards the experience required to gain MAAT.

Thanks again.

Harps.

Harps

That's excellent news and the way to go.  Starting with a clean sheet - opening balances from the accountants and their support will be invaluable both in terms of experience and gaining references.  As you know I think AAT is the best to start qualifications.

Sheila

I think we posted at the same time Selmsley. 

Yes its reassuring knowing that the accountants are there to back up any doubts.

Thanks for your reply

Harps

That's good news. Something well worth considering.

Thanks Pegs.

Robh touched upon it but I think it is important for people to remember the difference between accounting profit and taxable profit. Accounts are designed to show the profitability and position of the business.

Therefore an expense to the business can be shown in the accounts but disallowed for tax purposes. The accounts are not prepared just for tax.

So the fines can go through Sage but would be disallowed in the tax computation. The same treatment applies to depreciation and client entertaining.