SE Cash basis - Delay expenses to following year?

_MrBojangles_

Say I've been calculating my profits for tax year 21/22 and I've finished adding my expenses up to March '22 and I'm currently at £10,000 profit (so below the threshold)

I haven't yet accounted for a £2,000 computer that I bought in March '22 that would put my profit down to £8,000 - but I'm already below the tax threshold so there's no 'point' to claiming it as an expense, right? (Other than providing a full & frank account, of course)

Can I push that expense forwards and claim it in the tax year 22/23, where I anticipate my profits will be higher?

I'm guessing that'd be impossible using cash-basis accounting, but if I switch to accruals is there a mechanism where I can make this work? My circumstances are obviously different to the example above, but it's basically a case of lots of business investment in one year, then much more profit the next year. Would be nice not to 'waste' all these expenses, if you see what I mean!
Cheers

Jeremy535897

 Switching to the accruals basis for 2021/22 would mean that the computer would become eligible for capital allowances. You can't say that it belongs to the 2022/23 year, but you can disclaim any capital allowances claim in 2021/22. You can then claim writing down allowances (18% reducing balance on the business proportion) from 2022/23 onwards. A short life asset pool might be appropriate.

Whether it is worth going to the trouble is another matter. Also, you should have filed your self assessment tax return for 2021/22 by 31 January this year.

_MrBojangles_

Jeremy535897 said:

 Switching to the accruals basis for 2021/22 would mean that the computer would become eligible for capital allowances. You can't say that it belongs to the 2022/23 year, but you can disclaim any capital allowances claim in 2021/22. You can then claim writing down allowances (18% reducing balance on the business proportion) from 2022/23 onwards. A short life asset pool might be appropriate.

Whether it is worth going to the trouble is another matter. Also, you should have filed your self assessment tax return for 2021/22 by 31 January this year.

Hi, thanks for your answer. Sorry I muddled my dates up; I have already filed 21/22; I'm one of those nerds who always files on April 6th! 

Great point about capital allowances, hadn't considered that at all and it makes my analogy a bit inaccurate. Could I expand the example to include all my expenses, even ones that aren't applicable to capital allowances. 

So let's say at the end of this tax year I can see that my profit is below the tax threshold even before I include any of my expenses for March, can I carry those expenses forward and put them in the following year's return instead?

DullGreyGuy

So you are sole trader?
Are you using cash or accruals basis?

Jeremy535897

No. What the accruals basis does is to require adjustments for creditors and debtors, accruals and prepayments, and stock. You can also claim all your business interest and finance costs, as opposed to being capped at £500. You can also claim capital allowances on plant, instead of treating it as an expense.

I don't know whether you carry any stock, or whether people owe you money you haven't received yet, or whether you will owe people money at the year end. There are also transitional rules to apply when you switch from the cash basis to the accruals basis. If a customer owed you money at 5 April 2022, and you hadn't included that sale in 2021/22, it would have to be included in 2022/23, even though it would not be included using the accruals basis.

If you were talking about 2022/23 rather than 2021/22, that implies that you haven't bought the computer yet, but you said you bought it in March 2022. If you were going to buy it in 2022/23, wait until 2023/24. 

_MrBojangles_

DullGreyGuy said:

So you are sole trader?
Are you using cash or accruals basis?

Sole trader on cash basis

Jeremy535897 said:

No. What the accruals basis does is to require adjustments for creditors and debtors, accruals and prepayments, and stock. You can also claim all your business interest and finance costs, as opposed to being capped at £500. You can also claim capital allowances on plant, instead of treating it as an expense.

I don't know whether you carry any stock, or whether people owe you money you haven't received yet, or whether you will owe people money at the year end. There are also transitional rules to apply when you switch from the cash basis to the accruals basis. If a customer owed you money at 5 April 2022, and you hadn't included that sale in 2021/22, it would have to be included in 2022/23, even though it would not be included using the accruals basis.

If you were talking about 2022/23 rather than 2021/22, that implies that you haven't bought the computer yet, but you said you bought it in March 2022. If you were going to buy it in 2022/23, wait until 2023/24. 

No sorry I was just giving an example. I should have been clearer really - basically I don't want to claim a bunch of expenses this year because there's no 'point', i.e. I'm already under the tax threshold this year. Whereas next year I anticipate higher profits so would be useful to offset some of the 'unused' expenses this year against them - if that's possible. 

Jeremy535897

If you are on the cash basis, the best thing is to delay paying your suppliers as long as possible, and bill and collect the cash from your customers as soon as possible.

_MrBojangles_

Jeremy535897 said:

If you are on the cash basis, the best thing is to delay paying your suppliers as long as possible, and bill and collect the cash from your customers as soon as possible.

I can certainly try that in future, although that may be difficult in my line of work. And obviously travel expenses (which form a substantial chunk of my expenses) have to be paid at the time. Unless I can delay claiming for those miles until the following year? And the other expenses too?

Jeremy535897

You can't choose to claim expenses in year 2 that you have paid in year 1 (cash basis) or incurred in year 1 (accruals basis). That applies to mileage allowance and to everything else.

_MrBojangles_

Jeremy535897 said:

You can't choose to claim expenses in year 2 that you have paid in year 1 (cash basis) or incurred in year 1 (accruals basis). That applies to mileage allowance and to everything else.

Blast, that's what I suspected. Thanks for clearing that up.