Money earned from self employment

Mary222

Just a basic question that I cannot find an answer too!

When doing self employment assessment - do you pay tax on monies earned in the tax year or monies recieved.

For example, say if i earned money on the 1st april, but did not recieve it until the 20th, do i pay tax on that in the current tax year, or the on after.

Thanks so much!

Pennywise

Mary222 wrote: »

When doing self employment assessment - do you pay tax on monies earned in the tax year or monies recieved.

It's on earnings, i.e. work done/sales made in the year, less expenses incurred, stock sold in the year. The timing of the payments in and out is irrelevant.

Mary222

Thanks for your reply

So I am a contractor and I get paid two weeks ahead of the work done. So I have to pay tax on when I earned the money, rather than two weeks later when I recieved the money?

PlutoinCapricorn

I did some freelance work last March, for which I got paid just after April 5th. I still reported it as income for 2011/12, as HMRC's guidance notes say should be done. I put a note on my bank statement. The rationale is that you will have received payment by the time the tax return is completed.

I have not heard of many cases of people being paid ahead of the work.

cotswoldaccountant

Mary222 wrote: »

Thanks for your reply

So I am a contractor and I get paid two weeks ahead of the work done. So I have to pay tax on when I earned the money, rather than two weeks later when I recieved the money?

Yes, but actually the tax is not due until 31 January following the end of the tax year in which the money was earned. So this should give you plenty of time in which to get paid!

For later tax years, you may have to make two tax payments "on account" each year - but again, these are not due until 31 July and 31 January following the end of the tax year, so plenty of time to get paid.

Just remember to set aside tax each time you do get paid, so there are no nasty surprises when the tax bill arrives.

terryw

There is provision for doing your accounts for HMRC on a cash basis rather than the usual earnings basis if the amount is less than £77,000 . Here is a link:

http://www.hmrc.gov.uk/budget-updates/11dec12/2014-2016-helpsheet.pdf

HappyMJ

I prepare my accounts using cash accounting only paying tax on money when it hits my bank account or when I pay for an item.

cotswoldaccountant

HappyMJ wrote: »

I prepare my accounts using cash accounting only paying tax on money when it hits my bank account or when I pay for an item.

The cash accounting method of accounts preparation for small businesses is only available from the 2013-14 tax year. For 2012-13 you must account for income when it is earned (not when it is received). This is know as the accruals basis of accounting.

Mary222

Thanks! I dont mind when I pay taxes, just want to ensure that I pay them in the correct tax year.
So, it looks like if I earned money on 4th april (as an example) but the payer doesnt pay me until the 14th, it would be accounted for under my 2012-2013 taxes?

Thanks again!

HappyMJ

Mary222 wrote: »

Thanks! I dont mind when I pay taxes, just want to ensure that I pay them in the correct tax year.
So, it looks like if I earned money on 4th april (as an example) but the payer doesnt pay me until the 14th, it would be accounted for under my 2012-2013 taxes?

Thanks again!

You can also delay issuing the invoice if you want to defer payment. It doesn't really matter which year you put it in as the difference in tax due isn't very much. I've been investigated by hmrc for other things and they never mentioned it. Just make sure you declare it and if it's an expense it's only claimed once.