Accountancy Problem

[HongKongphooey]

Last financial year 2015-2016 when our accountant was doing our year end accounts, when they were done he said our small business had made £20,000 profit and therefore had to pay £4000 corporation tax. When we questioned this (We didn't feel like we had made that much, in fact my husband had lent the business several thousand pounds) he said that all our work in progress was counted towards profit. We did have some expensive jobs part finished on April 6th 2016. I don't get this because when we finally get paid from the customer, that would go into 2016-2017 years takings and count as that years profit, therefore taxed twice! Can anyone explain this? Or is our account wrong?

[TheChair]

Had you already invoiced the customers for the WIP? The income fill fall into the year in which the invoice was issued, regardless of when the payment is received.

[fiction-factory]

Presumably in working out the following year's profit the income bit would be new sales + new work in progress minus previous year's work in progress, so it will all come out in the wash. I'm not sure though why WIP has been counted unless some payment was received but I would ask the accountant and he may be able to show you the appopriate accounting rule/convention.

[HongKongphooey]

No we hadn't invoiced the customer at that time because being WIP obviously the work is still ongoing therefore the invoices would all fall in 2016-2017 tax year. When I questioned the accountant he said WIP was counted as 'working profit'. He didnt really explain it, and I'm totally confused.

[TheChair]

"He didnt really explain it, and I'm totally confused."
Well, having run a business for 34 years, so am I. :-)