paying tax on unpaid invoices

larry_skint

Apologies if this is the wrong section...

I ceased trading in March after 2 years self employed in the construction industry.
I am currently out of work, recieving JSA.
I am about to submit SA tax return for 09/10 and ask for reduction on payment on account as I've earned nothing this tax year and cannot meet the July PoA. HMRC themselves suggested this course of action.
However some invoices for work carried out last year have not been settled as yet. The invoices were submitted in Feb/March this year but the company is struggling and have asked me to be patient.
Can I leave these unpaid invoices out and declare them and pay tax on them in the next tax year 10/11 or when i return to work?
This would reduce my liability to a much more manageable level and push it back to the end of the year when, with any luck I should be working again.
I know I'm leaving this a bit late in the day, but any advice greatfully recieved.

L.

Pennywise

larry_skint wrote: »

Can I leave these unpaid invoices out and declare them and pay tax on them in the next tax year 10/11 or when i return to work?

No, your tax return always has to be based on work done in the year, not monies received in the year.

larry_skint

Thanks, but what if I never see that money (which ironically, would be the same money I would use to settle my PoA)?
If that company goes under, which is entirely possible, it would mean a struggle to recover from recievers etc, and a job to get a refund from hmrc.
How am I expected to pay tax on monies I have not and may never recieve...seems unfair and absurd to me.
After all, I'm not expected to pay VAT up-front for other goods and services.

L.

Premier_2

Your accounts should show that where invoices have been issued, but not yet paid, those clients are included as current debtors.

Eventually, if after time you think those debts will never get paid, you could write the amounts off as bad debts and include those in that years accounts.

Likewise, if you are registered for VAT (and not on one of the special VAT schemes), you will be expected to pay VAT to HMRC based on invoices issued, not payments received.

If you are struggling to pay, it sounds like you are suffering from cash-flow issues, something that is often the cause of most businesses failing. You'll need expert help as it's not really possible to deal with cash-flow problems remotely without having a clear understanding of your business and full access to your accounts to see where the problems are stemming from.

I know you say you've now ceased trading, but you still need to settle your debts. Unfortunately for you, HMRC is one of the leading authorities that regularly petition for bankruptcy when a person fails to pay their debts. i.e. the tax they owe.
You may be better off borrowing the money you owe.

larry_skint

Thanks.
L.

TM1976

If you think the company isn't going to pay you can make a provision against your profits for bad debts which would reduce your liability this year but you'd have to reverse it back to profit next year if they paid.

As the company is struggling and they haven't settled on time it seems reasonable to do this.

DCodd

Pennywise wrote: »

No, your tax return always has to be based on work done in the year, not monies received in the year.

Hi Pennywise, how does this work? I'm assuming that the op is CIS registered? The CIS scheme does not allow accounting for unpaid invoices. Surely the op's CIS returns must be reconcilable with their SA returns?

Pennywise

DCodd wrote: »

Hi Pennywise, how does this work? I'm assuming that the op is CIS registered? The CIS scheme does not allow accounting for unpaid invoices. Surely the op's CIS returns must be reconcilable with their SA returns?

CIS is on "receipts" basis, SA is on "accruals" basis - they reconcile if you account for the opening and closing debtors.

Same philosophy as VAT where you can be on the "cash" basis for VAT returns, but have to be on the "accruals" basis for SA returns.

In the case of CIS, you put on the SA return, the amount of CIS tax deducted on the "receipts" basis, but declare the monies earned and expenses incurred on the "accruals" basis so, yes, there can be a bit of a mis-match as regards debtors at each year end, but that's just the way it is.