Treasury throws lifeline over Abstract 40

Accounting firms facing a potentially crippling tax hit due to new accounting
rules could be thrown a lifeline by the Treasury, with talks between the
government and the profession’s umbrella body underway over the implications of
Abstract 40.

Sharon Grant, secretary of the Consultative Committee of Accountancy Bodies,
confirmed the Treasury had opened discussions ‘very recently’.

The CCAB had written to Gordon Brown warning that the tax hit caused by the
abstract’s implementation could lead to a ‘crisis’ by eroding working capital
and causing cashflow problems. Grant revealed that the CCAB was ‘very positive’
about the talks.

Abstract 40 clarifies accounting standards regarding revenue recognition in
professional services contracts.

ACCA’s head of taxation, Chas Roy-Chowdhury, warned that ‘hundreds of
thousands of small businesses’ could suffer a tax hit due to the rule, and
accountants would not find it easy to change their own billing procedures when
dealing with clients affected by the rule clarification.