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HMRC internal manual

Enquiry Manual

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HM Revenue & Customs
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Recalculating Profits: Private Side - Capital Statements: Which Date to Use

If the accounts year ends on 31 March, then accounts and returns virtually coincide. Where the accounts year end is substantially different from the return period, and if there are other businesses with different accounting dates it can be difficult deciding which date to use. It is preferable to use the accounting date of the principal business under review.

In many cases, where there is not a great deal of fluctuation in assets and income, using figures from the nearest return period will not cause a grave distortion when one year is taken with another. If greater accuracy is required, then it can only be achieved by actually obtaining prime documents and extracting details of income in the chosen year.

You should obtain detailed analyses of any director’s loan or current accounts. You will sometimes find that the dates on which fees or remuneration are credited, or lump sums are paid in to clear an overdrawn account, can affect the position for one year materially.

For example, assume that the taxpayer has been running a director’s loan account which has been habitually overdrawn at the end of the company’s accounting period on 30 April. To mask Section 419 liability, funds have been transferred temporarily from the director’s deposit account. The position over a 13 month period is

    2000   2001
  31 March 30 April 31 March 30 April
Deposit account £20,000 £5,000 £30,000 £25,000
Loan account (£15,000) - (£5,000) -

The increase in assets between 2000 and 2001 is £20,000. However, if the capital statement is being drawn up to 31 March, and the balances on loan account are assumed to be the same at 31 March and 30 April, assets are overstated but the increase is understated

  31 March 2000 31 March 2001
Deposit account £20,000 £30,000
Loan account - -
Together £20,000 £30,000

Had the movement on the loan account been in the other direction, so that it was becoming more overdrawn and needed a greater subsidy from the deposit account at the year end, the result would be to overstate the increase in assets.