PracticeConsultingCash basis snub

Cash basis snub

Third of partnerships take no action on tax-spreading option.

One third of professional partnerships are set to ignore the. government’s ten-year ‘tax catch-up’ concession for partnerships that introduce company-style ‘true and fair’ accounts, claims a new report.

Last December, the Inland Revenue announced the abolition of the ‘cash basis’ tax system for UK partnerships from the 1998/99 tax year. Initially opposed by accountancy firms such as survey producer Smith & Williamson, the measure will require partnerships to produce true and fair accounts for taxable profit & losses. It will also force work in progress to be calculated on a cost price basis rather than billing price.

All partners’ self-assessment tax returns will have to reflect their share of the catching-up charge over the ten-year transition period.

Of the 150 UK professional partnerships such as lawyers and architects surveyed, one third said they would ignore the option allowing them to spread the tax liability of the new law over ten years.

These companies claimed the concept of ‘true and fair’ accounts ‘was alien to the professional practice sector’. On the issue of how to reflect work in progress and uncompleted work on the balance sheet, 48% of firms were undecided.

Colin Ives, a tax partner in the professional practices group at Smith & Williamson, said the professional partnerships were being naive. ‘If they ignore the changes they’ll pay all their tax for 1999-2000 in one go,’ he said.

He added ‘If you put work in progress on the balance sheet, who owns it?’

The tax faculty at the English ICA is expected this month to publish guidance notes for auditors calculating work in progress.

Mark Lee, a tax partner in the professional practices group at BDO Stoy Hayward, said: ‘It’s a wake-up call for accountants. It will oblige people to recognise the accounting implications of the new tax.’

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