JodieRJodieR Experienced MentorPosts: 1,002Registered
One of my clients has just informed me that he's took out an IVA in July 2009. It includes some personal debt and some business debt, most of the business debt being approx £5k owed to his (ex) electricity supplier. I'm preparing his accounts to 31 Mar 09 and his VAT return to 31 Dec now. The electricity bills mainly date back to the y/end 31 Mar 2009. I just can't quite get my head around how the IVA will affect his accounts. Say he's paying back 30% of his debts, do I need to transfer the electricity creditor to an 'IVA' account and then write off 70% of this amount? if so where to? and then does it sit like a loan account in the accounts and reduce as he makes the monthly payments? I'm guessing that the accounts to 31 Mar 09 are unaffected. Does he still get relief for the whole £5k electricity though?
My brain's too mushy to be dealing with this for the first time now!


  • deanshepherddeanshepherd Font Of All Knowledge Posts: 1,809Registered
    I would write 70% back to the P&L. If he has not paid for the electricity then he cannot get tax relief on it.
  • JodieRJodieR Experienced Mentor Posts: 1,002Registered
    If anyone's interested (as i'm sure i'm not the only one who's going to have a client in this situation)...

    I eventually got to speak to someone at HMRC yesterday about this and he said that no adjustment should be made through the P&L in respect of the IVA. The accounts are prepared 'as normal' and the tax due is then calculated and included in the IVA, and then (like what happens in bankruptcy) the client is issued with a new UTR the following tax year to start 'fresh'. By writing the debt back to the P&L it would unfairly increase HMRC's claim in the IVA.
    I read on another forum that the amounts written off would show as 'exceptional income' in the accounts, but from what HMRC said this would not be taxable 'income'.
  • deanshepherddeanshepherd Font Of All Knowledge Posts: 1,809Registered
    Very interesting to know, thanks.
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