Corporation tax implications of VAT registration

Accounting
1

We’ve been doing some grant funded R&D. It was explicitly grant income - income received by the company for which we did not have to provide anything in return - and therefore outside the scope of VAT.

As of our year end, 31/12/2013, we were not VAT registered and had spent the entire grant. (£16,410)

If I’d run year end and completed a CT600 there and then, it would have shown obtaining income, spending all of it, and therefore no tax liability.

However…

We registered for VAT in February this year, selecting an effective date being the date of incorporation, 25/06/2013, such that we can reclaim VAT spent on research stuff back in 2013.

If I preview a year end in Quickfile it flags up a retained profit for year to end 31/12/2013 as equal to the VAT refund that we’re due. (£2450ish)

This will lead to a 20% (~£450) corporation tax liability as I understand it.
http://www.hmrc.gov.uk/rates/corp.htm

Is this correct? I’d have thought our expenses in that year were higher by £2,450 and our income this year higher by £2,450.

2

In current year accounts you need to adjust figures for expenses and income, make net of vat for last year end by calculating vat reclaimable on expenses and payable on income

Entries would be based on last year’s accounts

Dr Vat a/c
Cr Expenses accounts

Dr Sales
Cr Vat

Any balance on vat account would be reported in next vat return, any corporation tax adjustment will be automatically accounted for this year.

You would need to adjust R&D relief figure for last year though

3

Hi FK,

Apologies for the delayed follow-up; I buried my head in the sand in this one until deadlines loomed.

I ended up redoing the accounts from scratch, following the slight oopise at quickfile with losing the scanned receipts, and did a ‘year end’ as at 31/12/2013 without any VAT being shown. (there weren’t many entries anyhow)

Thank you for the advice though. :smile: