Accounting of loss, loan and Tax on the profit

Accounting of loss, loan and Tax on the profit 

 

Question 1:

Hello,
I have the following case:
Last year (2016) I was at a loss of 50 000 leva. I gave a short-term physical loan to a legal entity to cover the losses, and the cashier was 0.
I received a commission from a Polish service company, which was VAT free and covered the loan of BGN 50,000.
Since the money that comes out of the company to cover the loan charges them as an expense I have to pay profit tax on them or just the difference between income and expenses?
Thank you in advance?

 

Answer 1:

 

Hello,

There is in your explanation a confusion between revenue and expenditure and cash flow.

Loss is the difference between revenue and expenditure. (revenue is the sum of the invoices for sold assets (goods, materials, fixed assets) or services rendered and the cost is the sum of received invoices for services, the reported (purchase) value of the assets sold, the bank and administrative fees paid, the depreciation, for wages and social security)
The $ 50000 (with which you covered the minus cash) is a cash flow in the form of a loan with which you have filled in the missing company funds and not a revenue that covers the loss.

The commission received by the Polish company (I suppose this is happening in 2017 because if you are in 2016 you are not at a loss at the end of the year) is an income.
The transfer of cash from the company to the individual is not an expense, but a movement of cash that covers the amount of the liability to the individual who has granted the loan.

From the explanations you make it clear that your company is subject to VAT registration as you receive a commission for intermediary services provided by a Polish company (Article 97a of the VAT Act). This registration should have been made within 7 days before receiving the funds from the Polish company.

Welcome to one of our offices with the papers you have in order to get a clear pragmatism about the state of affairs with your company and to be able to give you a final answer on what to do to avoid problems with state institutions.

Greetings.

 

Question 2:

Hello,
thanks for your reply!
The company was registered in 2012 under VATA, but when we finished the annual report I was at a loss of 50 000 BGN and according to my accountant then it was best to give a loan from the company's physical person and then get back this loan provided I expected income under different contracts.
After a few months I got income and returned the loan from the company to the physical person.
Now, when the year ends, the accountant tells me that I owe a tax on that 54 000 BGN on the invoice.
I ask him why I had to give a loan to the company after a few months later we had money in the bill and with them we could cover the losses and why did not he tell me then that it would not be a cost when I return it and he tells me that he has forgotten.
That's why I turned to you for your opinion.
Now I wonder how to transfer this year's revenue for this year,
because I bought a house earlier this year and I will take her as an asset.
 

Answer 2:

 

Hello again.

After you finish 2015 at 50000 loss, this year you have earned $ 54,000 in commission income. However, when determining the tax financial result, you have the right to deduct a loss of £ 50000 from last year (2015), and you only have to pay a profit of $ 4,000 (x10% = $ 400).

Only the loss of $ 50000 has been declared in the 2015 Annual Tax Return. All lending and return operations are neither revenue nor cost.

Buying a house this year is not a cost for generating a profit and loss for the year, but is only a cash outflow. Asset costs are recognized through their accrued depreciation over the years of their operation.

I hope we have been helpful.

Greetings.