Tax implications of bounced cheque

leton

Hi there,

I recently did some work for a company who paid me by cheque which I immediately paid into my acccount. Unfortunately that company has now gone into administration and th money paid in from that cheque has now been debited back out of my account and the bounced cheque returned to me by my bank.

Aftwer speaking to the administrators of this company I have sent all the dtails of what I am owed along with the cheque. I dont hold out any hope of being paid but can I write this amount off as a loss on my self assessment (I am a sole trader)

If soemone could explain what the tax implications are that would be greatly appreciated

cheers

roger_c

When compiling the information to complete the self-employment pages you need to note all income and expenditure in the tax year. For this specific job you are still able to claim the expenditure that was required to carry out the work, as you were bearing the costs in view to make a profit, as no income has been received you will just not have any income/turnover in relation to this work shown on your return.

If any income is received within the tax year then of course this will have to be added to your annual turnover. Hope that helps...

leton

Thanks Roger,

what I was wondering though is hypothetically lets say the bounced cheque was £500. Can I write that £500 off my tax as even though there was not much expenditure in doing the work it took up my time which prevented me doing anything else.

so say my income for the year would have been 10k can I knock off 500 thus making it £9500

cheers

fengirl_2

For accounting purposes you should strictly include the £500 in your sales and include it as a bad debt in your expenditure.

greyteam1959

Yes I agree with Fengirl......but I think you have made an error by sending the cheque back......I would have kept the original cheque and sent them a photocopy back.
If you do as Fengirl suggests you will get back the VAT element on the bad debt

leton

Hi, thanks for the replies

Fengirl, how would I include the 500 in my sales if I have never received anything from the company in question?
If my tax for the year was 10k with say 1k of expenses without this particlar payment would it now be 10k with 1500 of expenses (including the bad debt)?

Sorry if this is a really obvious and basic thing.

Oh and Mervyn the adminsistrators insisted I send the original cheque to them.

thanks again

fengirl_2

You are confusing sales with income. Your accounts should include all your sales for the year, whether or not you have actually been paid. You would also reflect in those accounts the cost of those sales, eg purchase of goods which you sold, or materials if it was a service. Then, if you include the £500 as a bad debt in your deductions, the effect is to negate the sale income, but you still get relief for what it has cost you to make that sale.

leton

Thanks fengirl, really helpful of you to take the time to explain to a tax novice like myself

cheers