The new accounting standard, known as UITF Abstract 40, will change the way that service providers account for revenue and work in progress. However, one of the consequences of the change is a one-off 'catch-up' tax charge and the CCAB has been warning that many small businesses will struggle to meet the cost unless they are able to spread the payment over a number of years.

“Under UITF 40 many firms will need to recognise turnover in respect of ongoing professional work as that work progresses by reference to the proportion of the work completed, rather than only when contracts are completed. This will result in a one-off uplift in reported profits and a corresponding increase in the tax charge, without generating any additional cash to pay the tax," observed Ian Morris, Chairman of the CCAB.

The CCAB and the Law Society wrote to the Government on 4 October 2005 and have also had various discussions with HM Revenue and Customs and HM Treasury to raise the government's awareness of the tax problems that would be caused by UITF 40.

“The Chancellor in the Pre-Budget Report has allowed the additional tax resulting from the adoption of UITF 40 to be spread over 3 years and not exceeding 6 years for those severely affected," explained Mr Morris.

"Many suppliers of services, including businesses such as builders and electricians, will be badly hit by this extra tax charge and the ability to spread the extra tax will help cushion the financial blow to them," he added.

Kevin Martin, President of The Law Society, concluded that:

“The Government’s agreement to allow the additional tax charge to be spread should help ease the potential hardship. We very much welcome this announcement, which reflects a genuine willingness to listen to representations from business and take action so as to help UK businesses make the transition to this new accounting standard.”