question about self assessment

Nelly851

Hi

I am a new solo trader and I'd be thankful if you can help me understand what is the correct way of doing self assessment as a sole trader using traditional accounting (not cash basis) in the following scenario.

In March 2021 (previous tax year), I invoiced a client 10k for a project that is going to be completed this tax year (2021-2022). To deliver the project, I am spending spend a significant amount of this money (roughly 80-90%) to buy services from other businesses, i.e. translation, research, graphic design, etc. I don't employ people but simply use the services of other freelancers. So, in the end my actual income from this project is going to be more or less around 1-2k. 

Now, do I understand correctly that when doing my self-assessment for 2020-2021 (previous tax year) I declare the 10k as my income as the invoice is for March? but all the costs of the project that are being invoiced in the 2021-2022 tax year, will be filed for this year? Is it ok to separate the income and costs like this over two different tax years? 

The other question is where in the online self assessment form do I declare the money I am going to pay for the services I buy from other freelancers? Do I declare these as oridnary expense or should they be treated in a different way?

Sorry if the question is too basic. I am just having a hard time putting things together.

Thanks for your help

unholyangel

Cash or accrual? 

Jeremy535897

unholyangel said:

Cash or accrual? 

OP said "traditional accounting (not cash basis)".

Two questions:

• when did you actually receive the £10,000?
• are you registered for VAT?

unholyangel

Jeremy535897 said:

unholyangel said:

Cash or accrual? 

OP said "traditional accounting (not cash basis)".

Two questions:

• when did you actually receive the £10,000?
• are you registered for VAT?

Pretty sure that wasn't there before. I did reread it before asking, to try make sure I hadn't missed it - my first readings always a skim. My eyes did keep flitting to the solo trader though. 

Jeremy535897

unholyangel said:

Jeremy535897 said:

unholyangel said:

Cash or accrual? 

OP said "traditional accounting (not cash basis)".

Two questions:

• when did you actually receive the £10,000?
• are you registered for VAT?

Pretty sure that wasn't there before. I did reread it before asking, to try make sure I hadn't missed it - my first readings always a skim. My eyes did keep flitting to the solo trader though. 

Napoleon Solo, perhaps?

The answer is almost certain to be :

• ignore it if not paid in 2020/21
• treat it as "accruals and deferred income" if paid in 2020/21 (FRS105 para 18.13*)
• if registered for VAT, the VAT point will be when the invoice was issued, per https://www.gov.uk/vat-record-keeping/time-of-supply-or-tax-point

*See https://www.frc.org.uk/getattachment/fbe6b585-4b9e-412e-adcd-0567a9ce78cc/FRS-105-FRS-Applicable-to-the-Micro-entities-Regime-(March-2018).pdf at page 80.