Hi
This may be a stupid question but do u pay tax on WIP twice??
Just thinking this as its added to ur p&l then u have the corp tax on that then its invoiced the following year so that's included in your sales for the following year?!?
Sorry if u think that's a daft question but would be grateful if someone could explain??
Thanks
F
The point of work in progress (like stock) is to transfer the cost out of the financial year in which it was incurred, into the financial year in which the (directly resulting) sales are made.
Trying to keep things as simple as possible...
In the first year, where you have no WIP brought forward, you are in effect increasing your profit (or reducing your loss) by the amount you've calculated as your WIP. Since you are taxed on your profit, you could argue that here you are paying tax on your WIP, because you've increased your profit by that amount.
However in the second year, as well as repeating the above process at the end of the year, you are *reversing it* at the start of the year. Last year's WIP figure is used to effectively reduce your profit, before this year's is used to increase it.
So, if you want to relate tax to WIP, at most you are being taxed on the *increase* in WIP, and if the WIP figure goes down, you are reducing the amount of tax due as a result. You certainly aren't being taxed twice on it, as you were worried.
I hope that makes sense.
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Vince M Hudd - Soft Rock Software
(I only came here looking for fellow apiarists...)
