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East Midlands Chamber News

Thousands of firms face crippling tax bills

The new rules, known as "Urgent Issues Task Force Abstract 40", alter the way service providers' account for revenue on work in progress.Until now, revenue on service contracts has usually only been accounted for (and hence taxable) once the work is complete. However, businesses are now required to write down the value of the proportion of work completed at the time their tax return is due. As a result, many firms will experience a one-off uplift in their taxable profits before they actually receive payment for completed work. The Consultative Committee of Accountancy Bodies (CCAB), which is made up of the six major accountancy bodies in the UK and Ireland, has written to the Chancellor, Gordon Brown, to warn him about the impact the change could have. It has also held preliminary discussions with HM Revenue & Customs (HMRC). Ian Morris, chairman of the CCAB, said: "For some businesses, the change could cause a real crisis and erode their working capital, adversely affecting their competitive position and ability to survive." He added that discussions were at an early stage with HMRC and was hopeful a resolution could be reached. The CCAB would like to see the one-off tax increases spread over the next ten years. Frank Haskew, head of the tax faculty at the Institute of Chartered Accountants in England & Wales, said businesses should talk to their accountants about whether they are likely to be affected. "Businesses might want to start to taking action to meet their tax bill in the worst-case scenario, perhaps by billing customers early or putting money aside to finance it," Haskew said. The new rules take affect for accounting periods ending June 2005 and after - meaning the earliest any resulting tax will be due is 31 January 2007. (c) Business Hotline Publications Ltd 2005