Self employment, invoice date or work date or payment paid date?

voytovdwiof

Imagine the following scenario:

Self employed
March 1st until March 30th work is done under contract, net30 payment schedule
April 20th Invoice is issued
May 1st payment is sent

Which date would the income matter for when filing a tax return when between the payment date and the work date a tax year change occurs. In this situation there are 4 possible dates, date that the work commences, date that the work completes, date that the invoice is issued and date that the payment is received.

pjclar02

Hello there

You should prepare your accounts on an "accruals basis" which means that if the work is done in March 2011, it will be included in your 2010/11 tax return as sales income, even though the payment is not received until the 2011/12 tax year.

Hope this helps.

Pennywise

Further to last response, if the work straddles the tax year end, you need to apportion the sales value on a daily basis so that the proportion of the invoice relating to work done pre 5/4 is included in the earlier year and the balance after 6/4 is included in the later year. (And of course, apportion any costs incurred in the same way).

chrismac1

Yep, I agree with the last two posts. A typical "one-person band" operation with significant balances is something like an architect or surveyor. One client of mine last year had an advance payment of £20k from flood remediation work on a project he started shortly after the year-end. The invoice was pre year-end, the treatment is to take this out of sales and put it into deferred income. Conversely, he also had another project of £10k on which he had the work certified by year-end but invoiced a week after the year-end date. So the entry here is to create an asset within Debtors called "Accrued Income" for £10k and increase sales by £10k. It's important to note the reasons for such adjustments, especially for VAT-registered businesses because we are now in a situation where there are significant differences between the outputs on the VAT return and the sales in the filed accounts, something that a lot of HMRC staff have a hard time getting their heads around if they don't really understand how accounts are put together in the modern world.

ceeforcat

Chrismac- thought you wouild like to see how the Irish allow their taxpayers to view their records given your (mostly shared) views on our current HMRC malaise - excellent system.

http://www.revenue.ie/en/online/paye-anytime.html

chrismac1

Is it true HMRC are re-naming the UK system "PAYE - geological time" ?