You may have bad debts for your latest accounts which you have ignored. Can you claim tax relief on these?
You accountant can prepare your tax returns and company accounts to the best of their knowledge according to the information you provide, but may not be aware of your bad debts.
These need to be shown in the company accounts so profit is not overstated and you do not pay corporation tax on money you will not receive. If you have a customer who owes money but cannot be contacted despite reasonable attempts, this is a bad or ‘impaired’ debt.
However, if there are a lot of small debts it can be difficult to review and assess each one. HMRC says you can estimate the proportion of debts which are impaired for groups of customers rather than one by one. You cannot include a general estimate.
For example, a company’s accounts show that in recent years its debts are £10,000. It is not allowed to simply include a similar amount for the current year.
But, if the company’s records show that the customers are trade or non-trade and that 5% of trade customer and 10% of non-trade customers who owe money for six months or more never pay, the company can include an estimate in its accounts of bad or doubtful debts equal to 5% and 10% of trade and non-trade debts respectively without having to review each one.
Of course, good record keeping is vital and Vincent & Co can advise you on how to do this. Call 01803 500500 for advice.