uitf 40

UITF 40 is a recent addition to Inland Revenue legislation relating to the valuation of work in progress, mainly for professional firms such as accountants, solicitors, etc.

Previously, businesses did not need to recognise the value of their time on uncompleted contracts unless a contract was being accounted for under SSAP9. They included the cost of, say, employees who were working on any uncompleted contracts but not any profit element for those employees. FRS 5 says that ‘You have to recognise income when you have a right to consideration in exchange for work performed’. This means that businesses now have to recognise the profit element in relation to uncompleted contracts, even where there is no right to income until the whole task is completed.

For most businesses, this will mean that there will be a taxable adjustment arising in the 2006/2007 tax year. The Inland Revenue have stated that, in some cases, it will be possible to spread this adjustment over three to six years, depending on the circumstances.