Uncashed Cheques - Tax Return

pennypincher3562

HI

I am planning to submit my online tax return by Jan 31st. I've got a single uncashed cheque which I received as income - it is in dollars. I might not cash this cheque until next year, due to current exchange rates currently being unfavourable.

How do I account for this uncashed cheque in my tax return? Do I simply not declare it, in this year's tax return?

Thanks
PennyPincher3562

mulronie

HMRC would expect your accounts to be prepared on the accruals basis - that is, income should show in the tax year that it was earned. This means the fact that you won't physically receive the funds until a different tax year is not relevant.

It could be worth checking with HMRC if it's a significant amount and you are not a high turnover business (I believe annual turnover under £15k can sometimes book income as it is realised rather than earned)... although as you have 'been paid' and are choosing not to cash the cheque, I very much doubt they would let you hold off until next year

As an aside, US banks may not honour 'checks' cashed after 6 months of the date of issue.

pennypincher3562

Hi Mulronie

Thanks for the quick response. All my cheques are in Us dollars.

If I were to declare the income from the uncashed cheque, would I simply apply today's exchange rate to it?

Obviously by the time I get round to cashing it next year, the exchange rate will have changed and my income declaration in £ will be slightly out.

Cheers
PennyPincher3562

System

Just wondering what is your accounting period and when did you receive the cheque?

pennypincher3562

Hi Pam17

Thanks for trying to help out. The cheque was issued last month. The tax period in question is 2011/2012. The tax return must be submitted by jan 31st.

Cheers
PennyPincher3562

anselld

pennypincher3562 wrote: »

Hi Pam17

Thanks for trying to help out. The cheque was issued last month. The tax period in question is 2011/2012. The tax return must be submitted by jan 31st.

Cheers
PennyPincher3562

If "tax period" means tax year, ie 6/4/2011 to 5/4/2012, then the cheque is irrelevant unless it is payment for work done in that period.

jimmo

In my days at HMRC we were normally content if a one-man business used something akin to the average rate for the year from HMRC‘s own exchange rates. So for 2011/12 income see

http://www.hmrc.gov.uk/exrate/usa.htm

Not so for big businesses and maybe not so for a one-man business if we could see that you were sitting on cheques, effectively gambling on exchange rate fluctuations going in your favour.

Then we would apply the strict rules.

http://www.hmrc.gov.uk/manuals/bimmanual/bim39506.htm

pennypincher3562

HI

Anselld has pointed out that the tax year ended on 5/4/2012, so it's irrelevant if I hold on to the current cheque.

This is my first tax return so I've got a lot to learn. Thanks for all your responses.

PennyPincher3562

monkey_writer

I called the HMRC self-assessment helpline (0161 931 9070) today as

I have two invoices from tax year 11-12 which were paid in 12-13, and I wasn't sure which year to include them in - whether I should work on a cash or accruals basis.

They said very definitely I should put them in at the payment date, not the invoice date - so on a cash basis.

Most of the advice I have seen on the internet (and on this forum) has recommended an accruals basis, but I think it's probably safer to go with the tax-man's advice on this one.

PlutoinCapricorn

HMRC's notes are what I would go by: Box 8 is where you put your income and the guidelines say it is for earned rather than paid income. Presumably this is because you will normally have been paid by filing time.

monkey_writer

Heh! This client didn't pay for 11 months - until I started charging them interest and late payment fees