Avoiding Corporation Tax on Order Placed Just Before Year End? Please Advise!

optimusgrime

Hi Guys,

I like to withdraw all profits from my company as a combination of pension and salary before it's year end, leaving next to nothing in the bank, no profits and no corporation tax. It's also important that the abridged accounts show as little profit/bank balance as possible. My year end is the end of April, ie end of next month.

I need to place a large order for stock (the best part of €100,000) in the next week or two, which won't actually arrive till about 3 months time. Now if I place this order I think it will show up as €100,000 of stock at the year end and be liable to corporation tax? It will also show up on the abridged accounts as €100,000 profit which I want to avoid.

Is there a way around this? The way I see it, if the order was placed just after the year end it would not be an issue as the stock would be used up during the year and so gone by the end of next year, ie no profit.

But I kind of need to place the order now and probably pay 60% of it up front.

I was also thinking I could withdraw all profits from the company (as salary etc), loan the money to the company and then pay it back in a couple of months. This would leave me with €100,000 of stock but a debt of €100,000 also, so no corporation tax but the large sums of money on the abridged accounts.

Can anyone think of any other way I can achieve what I'm looking to do, ie avoid corporation tax and preferably from having this sum of money appear in the accounts at year end. Pushing the year end date forward is sadly not an option.

Any help would be much appreciated!!

Thanks

smeharg

Maybe a silly question but why doesn't your accountant sort this out for you?

Why do you need to show little or no cash on the abridged accounts?

You don't need to physically pay the salary prior to the year end. You can calculate your profit and the requisite salary to reduce that profit to nil after the year end. The salary would show as a creditor, ie money owed to you.

As for the stock, it won't show in the accounts until it is actually received. If you have to pay 60% on placing the order this will show as a debtor in your accounts. There will be effect on profit or loss.

Even if the stock was received before year end the profit and loss effect would be nil, as it would show purchases of €100k (dr) and closing stock of €100k (cr).

optimusgrime

smeharg wrote: »

Maybe a silly question but why doesn't your accountant sort this out for you?

Why do you need to show little or no cash on the abridged accounts?

You don't need to physically pay the salary prior to the year end. You can calculate your profit and the requisite salary to reduce that profit to nil after the year end. The salary would show as a creditor, ie money owed to you.

As for the stock, it won't show in the accounts until it is actually received. If you have to pay 60% on placing the order this will show as a debtor in your accounts. There will be effect on profit or loss.

Even if the stock was received before year end the profit and loss effect would be nil, as it would show purchases of €100k (dr) and closing stock of €100k (cr).

Thanks for the reply. I'm looking to get some more opinions to see if there is another way that we've not thought of.

Re: showing no profit or bank balance in the accounts, it's quite complicated but need to show as small numbers as possible for all.

Are you sure about the stock not showing in the account's till it is received?

Thanks again

smeharg

optimusgrime wrote: »

Thanks for the reply. I'm looking to get some more opinions to see if there is another way that we've not thought of.

Re: showing no profit or bank balance in the accounts, it's quite complicated but need to show as small numbers as possible for all.

Are you sure about the stock not showing in the account's till it is received?

Thanks again

With all due respect, I think your limited knowledge of accounting rules and principles is creating a problem where there isn't one.

You may have your reasons for wanting "as small numbers as possible", but I hope they are legitimate reasons and not an attempt to show a different picture from reality.

As for the stock how can you show an asset in your accounts that you don't have or own?

optimusgrime

Thank for the reply. I can assure you that I am being legitimate.

To make it simpler, if I make a payment towards an order before the year end but will not have the goods till after year end, how does this show in the abridged accounts?

If it's not stock, is it a debtor? Or there at all? Any advice would be much appreciated.

smeharg

It would be a prepayment shown under debtors and prepayments.

However, if it is wholly unrecoverable, ie if you cancelled the order you'd lose the full amount, it should probably be expensed. But that's unlikely to be the case.