Treasury: fears that firms that responded early to accounting changes are being penalised

The Law Society and leading accounting bodies have asked the government to make tax relief available to all professional practices coming to terms with new accounting rules, and not penalise those that adopted the changes early.


In a joint letter sent last week to the Paymaster General, Dawn Primarolo, the Society and the Consultative Committee of Accountancy Bodies (CCAB) said it was unfair that the spreading relief announced by the Chancellor of the Exchequer in his Pre-Budget Report in December will only apply for accounting periods ending on or after 22 June 2005.


A significant number of professional firms adopted the changes brought about by accounting statement UITF Abstract 40 - which accelerates the way they account for revenue and work in progress - ahead of that date. They face the prospect of paying the full amount of the resultant tax hit at the end of this month.


The Society and the CCAB warned that some practices that adopted the new rules earlier than the 22 June 2005 cut-off date are now considering submitting amended returns.


'We believe that taxpayers are entitled to amend returns in this way, but we do not think that the situation is satisfactory, either for [the Revenue] or taxpayers,' they wrote.


It has also emerged that the spreading relief is not as generous as previously thought, once the rules on making payments on account are taken into consideration.


Kevin Martin, Law Society President, said: '[The current proposals] will penalise firms which were the first to adopt the new method of accounting for work in progress, believing that they were pursuing best practice.'


Colin Ives, a director at accountancy firm Smith & Williamson, added: 'It is a pain in the neck to submit an amended return, [although] not that difficult to do. But it is daft that firms should have to consider it.'


A Revenue spokesman said: 'The Paymaster General will consider the letter and respond in due course.'