Simple Accounting Question...

Skyhigh

I'm checking over my books for the last tax year (sole trader).
For the first time, I had a customer who refused to pay - and now we're still going through the small claims procedure.

So, I've got an outstanding invoice for just under £2,000 - for last year.

Do I 'not bother' putting it in my sales ledger for last year - seeing as it's not a sale, so there's nothing to put towards sales.
Or do I account for this "lack of payment" in last years books somehow?

This was my main piece of work for the year and not getting paid has completely blown my profit for that year.

(In fact, its only £29 profit last year due to this outstanding invoice! Luckily this is additional work, not my main income.)


Any advice appreciated


Cheers,

creditcard123

You can write it off as a bad debt if its over 6 months
If you manage to get the money in through the small claims courts you can then enter it in next year's accounts

grantd

creditcard123 wrote: »

You can write it off as a bad debt if its over 6 months
If you manage to get the money in through the small claims courts you can then enter it in next year's accounts

I agree 100%. You don't want to be paying tax on income that is over 6 months and still refusing to pay.

theesel1994

My view is this is still a sale. If there is no chance of it being paid the sale is cancelled out by the expense of a bad debt. As this is going through the small claims court I would have said this wasn't a bad debt yet.

This 6 month rule - what is that all about? The only rule I know which mentions 6 months involves VAT. You cannot get back the VAT you've paid to HMRC on a sale which eventually turns into a bad debt until six months after invoicing.

double_mummy

http://www.hmrc.gov.uk/manuals/pimmanual/pim2054.htm

has all the answers

Skyhigh

double_mummy wrote: »

http://www.hmrc.gov.uk/manuals/pimmanual/pim2054.htm

has all the answers

I spent along time looking on HMRC and never came across that! Thanks.

Strangely, the judgement came through today (in my favour) - now we'll have to see if he'll actually pay the judgement. Probably not :-/

Premier_2

You don't say what your business is, but the hmrc link is related to income from property
If that's not your line of business it may not apply to you

Even if it is your line of business , it talks of :

• a debt which is clearly irrecoverable
• a doubtful debt to the extent it is estimated to be irrecoverable; the deduction is the full amount of the debt less any amount the taxpayer expects to recover

Pesumably, as you spent more good money chasing this debt, you believe it to be recoverable