UK Accounting Body Warns Government Over New Accounting Rule

by Robert Lee, Tax-News.com, London

06 July 2005

The Consultative Committee of Accountancy Bodies (CCAB) is concerned over the tax effect of a new accounting rule and has warned the United Kingdom government that it could cause major hardship for suppliers of professional and trade services.

The new accounting standard, known as UITF Abstract 40, will change the way that service providers may need to account for revenue and work in progress. However, one of the consequences of the change is a one-off tax charge, and the accounting profession's umbrella group has written to the government and held preliminary discussions with HM Customs and Revenue in a bid to raise awareness of the potential difficulties firms may face in meeting this extra tax cost.

Ian Morris, Chairman of the CCAB, noted that:

“For those affected the new rules will cause major hardship for suppliers of both professional and trade services. This change could affect many ordinary businesses including for example builders and electricians.”

Mr Morris continued:

“Many firms will now 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 the corresponding tax charge. The change in the basis of accounting produces an uplift to the taxable profit in the year of change without generating any additional cash to pay the tax. For some businesses, the change could cause a real crisis and erode their working capital, adversely affecting the business’ competitive position and ability to survive."

“We are seeking to minimise the tax impact of any change under UITF 40. On behalf of CCAB, I have written to the Chancellor requesting that any additional tax be spread over a period of ten years. We have also met with representatives of HM Revenue and Customs and HM Treasury to discuss the issues in more detail. The discussions are at an early stage but the meeting was positive and constructive. We do not know at this stage if tax relief will be given but we will continue to press the case as hard as we can. We will provide a further update in due course.”

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