Treasury holds out over Abstract 40

HM Treasury has still not responded to a letter from accounting umbrella
group CCAB despite confirming that they had met up over concerns that small
businesses, including accounting practices, will suffer from a tax hit due to
newly-implemented accounting rule Abstract 40.

Despite the meeting, there is still no sign of the Treasury’s response to a
CCAB letter sent out three weeks ago outlining its fears over the accounting
rule.

‘Officials from HMRC and the Treasury have met with CCAB to discuss this,’ a
Treasury spokesman told Accountancy Age. ‘The Treasury is considering
the letter, and will reply in due course.’

CCAB chairman Ian Morris addressed the letter to Treasury heads including
chancellor Gordon Brown and paymaster general Dawn Primarolo, as well as HMRC
chairman David Varney, and has called for the effect of UITF Abstract 40 upon
professional services companies to be minimised.

The Abstract has changed the way service providers account for revenue
regarding work in progress. As work progresses, revenue must be recognised in
proportion to that work rather than when the whole contract is completed.

The change is expected to cause a one-off hike in revenue, and therefore the
tax bill, of businesses affected.

ACCA head of taxation Chas Roy-Chowdhury has previously stated that ‘hundreds
of thousands of small businesses’ could suffer a tax hit due to the rule, and
accountants would not find it easy to change their own billing procedures.

Abstract 40 is a clarification of an application note under accounting rule
FRS5.