Last week I got a call from a man who said he’d been given my contact details as a recommendation. On the phone he told me that his accountant supposedly lacked competence and had done everything wrong. According to him, there shouldn’t have been any profit, but the accountant never explained that things could have been arranged differently to avoid that profit.🤨
🚨A “red light” went on for me straight away, of course – it seemed odd that someone was being badmouthed so quickly. Still, I thought it might be worth looking at the annual reports he sent over.
After reviewing them, I could see that there was a profit – and quite a substantial one. Corporate income tax had been calculated at 16%: although it was the company’s first year, turnover reached almost half a million, so the relief no longer applied in this case. Having assessed the expenses and accruals, I found nothing wrong.
I also asked about the investment project relief – whether it could have been used.
But he kept coming back to the same point: that he could have bought materials in advance or otherwise “put the money to work”, and then he wouldn’t have had to pay corporate income tax.
So I stopped him and explained: if materials are purchased but not sold, they are not written off as expenses and do not reduce taxable profit. As we talked, it became clear that his accountant had done everything correctly.👍
I don’t know whether he went on to look for another opinion or whether my consultation was enough, but in practice I see misunderstandings like this quite often.👀
Managers pay someone an advance or buy materials, there’s no money left in the account – and they think that means they no longer have to pay corporate income tax.
Unfortunately, they do, because an investment does not reduce profit.📊
Have you ever come across a situation where a specialist gets the blame even though the problem lies somewhere else entirely? 🤔
