Prior Year Adjustment

crispy Registered Posts: 466 Dedicated contributor πŸ¦‰

I wonder if anyone can help with advise on the following:-

Small Ltd comapany has in previous years included an expense in their accounts for the directors use of personal home office space for business purposes. This has been challenged by HMRC and they have advised of an revised figure to use which includes an adjustment for previous years. Should this amount posted all through the current years P&L (im not sure how material it is), or should the opening reserves figure be adjusted ? Also how would this be treated on the company's tax return ?

Any feedback would be helpful.


  • deanshepherd
    deanshepherd Registered Posts: 1,809 Beyond epic contributor πŸ§™β€β™‚οΈ
    No effect on the accounts, just an add back on the tax return.

    The tax liability in the accounts will be higher in the current year due to an underprovision for CT in earlier years but I would not go adjusting any previous accounts.

    No need to submit amended CT returns either. HMRC will take care of all that for you.
  • crispy
    crispy Registered Posts: 466 Dedicated contributor πŸ¦‰
    Thank you Dean for clear answer.
  • Steve Collings
    Steve Collings Registered Posts: 997 Epic contributor 🐘

    Just in terms of the title 'Prior Year Adjustment' - in a lot of cases financial statements will only contain an estimate of the current year's tax charge with over/under provisions being corrected in the following year (this is particularly common with medium/large companies or companies with complex tax transactions). FRS 3 suggests a prior year adjustment need only be done in instances of "fundamental" error - for example if a month's worth of sales have been missed in the accounts.

    Kind regards
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