Are you missing out on a tax deduction?
Some helpful tips to make sure you are not missing out on a tax deduction:
• your input to your accountant is essential to make sure that the accounts are accurate. This way your company pays no more tax than is necessary. One area they will need your help with is bad debts:
* “Bad debts” are debts a customer owes to your company which you do not expect to receive. This is otherwise known as an “impaired asset”. The company’s accounts need to show these so that profit isn’t overstated and it doesn’t pay corporation tax on money it won’t receive. Your accountant can not decide a debt is a bad debt so you need to inform them of these.
* You’re allowed to estimate the proportion of debts which are impaired for groups of customers, rather than one by one, but you can’t include a general estimate. There are different scenarios where estimates may or may not be allowed:
Example 1 – estimate not allowed. A company’s accounts show that in recent years, on average, its bad debts were £10,000. It isn’t allowed to simply include a similar amount for the current year.
Example 2 – estimate allowed. A company has trade and non-trade customers. Its records show that 5% of trade customers and 10% of non-trade customers who owe money for six months or more never pay. They can include an estimate in its accounts of bad or doubtful debts equal to 5% and 10% of trade and non-trade debts respectively without having to review each one.
And remember to keep thorough records of your transactions as good record keeping is vital for any inspection that may occur.
Credit: Tips & Advice – Business Database
Photo credit: Wall Street Journal