Tax on non-PAYE income for 2020: tax on monies received or amount billed

A

Amygdala

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Dear askaboutmoney, I am completing my tax returns for 2020. I have a non-PAYE income stream. Through a billing company, my clients are billed. Each year there can be up to a 20% difference to the amount that is billed to the money that is received for that tax year. Some invoices remain unpaid for many months and some are never paid. My question is this: do I pay tax on the actual money I receive in 2020 or how much is billed in 2020? Thanks in advance, A.
 
Are you trading as a sole trader or as a company or are you declaring additional income?
 
On my accountant's advice, I always use the invoice date. He also tells me I can declare work in progress but not actually invoiced at end of year as taxable income if I wish to do so. I've never taken this option though.
 
Thanks baby boomer. I do not understand.
I declare additional non-paye income on-top paye income.

Here is my scenario for tax calculation in 2020 with basic figures as an illustration.

In 2020 I sent out invoices total €100 for work in 2020.
I receive payments total €80 euro. This is made up of invoice payments from 2019=€30 + invoice payments from 2020=€50

Surely, I pay tax on the money I receive in the Tax year, as some invoices remain unpaid for a very long time and some are not paid, the account is canceled. Why would I pay tax on money I may never receive?
 
jpd said:
If the amounts are as insignificant as the figures you have given, then I would report the income when it is received.

A business or company would not normally operate on a cash basis but if you are earning a small extra amount, then yes cash basis would be appropriate IMHO

Read this https://www.revenue.ie/en/tax-profe...ains-tax-corporation-tax/part-04/04-07-01.pdf
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I thought that if non-paye income was under €5k you could use cash basis or conventional.
I don't know why €5k is a figure in my head, but it's in there for a reason and could be wrong. I've never found a definite figure officially though.
 
Apologies all.

The figures I used above were to illustrate the example. The figures are well above €5,000 and are cash payments.

Example:
In 2020 I sent out invoices total €100,000 for work in 2020.
I receive payments total €80,000 euro. This is made up of invoice payments from 2019=€30,000 + invoice payments from 2020=€50,000

Do I pay tax for 2020 on the €80,000- money earned in 2020 or €100,000 amount invoiced in 2020.

I hope this clarifies the question.
 
Amygdala said:
Apologies all.

The figures I used above were to illustrate the example. The figures are well above €5,000 and are cash payments.

Example:
In 2020 I sent out invoices total €100,000 for work in 2020.
I receive payments total €80,000 euro. This is made up of invoice payments from 2019=€30,000 + invoice payments from 2020=€50,000

Do I pay tax for 2020 on the €80,000- money earned in 2020 or €100,000 amount invoiced in 2020.

I hope this clarifies the question.
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With figures of that size I think you might have to use invoices amounts, but I'll leave any further advice to more experienced members of this forum to answer.
Not trying to be smar tor critical here but perhaps you should get your debtors to pay quicker, if 20% are late paying you are risking your business and cashflow
 
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With figures that high, you would base your income tax return on invoiced income - or rather your trading profits

Just adding in additional income would leave you open to an audit, I suggest.

Revenue would expect some sort of Trading profit and Balance sheet details
 
let's say you sent invoices for 10 million
and the tax liability sake of argument was 1million
And you paid 1 million in tax and then didn't get paid.. you now lost 11 million
So i would guess it's all based on monies received .. imho.. but then what do i know
 
moneymakeover said:
let's say you sent invoices for 10 million
and the tax liability sake of argument was 1million
And you paid 1 million in tax and then didn't get paid.. you now lost 11 million
So i would guess it's all based on monies received .. imho.. but then what do i know
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If you were earning and billing €10m and weren't getting paid, you have bigger issue than tax.
 
If you do your account as per accounting guideleines, then you would calculate an impairment allowance for bad or doubtful debts which would reduce your taxable trading profit.

Any reputable accountant would be able to help you with your return and if you are earning that much, then a few hundred euro for an accountant would be well spent
 
Thank you all for your replies.
From my point of view, I can not afford to pay tax on money I have not received.
Can I not just pay tax on the money that was paid to me in each year? These are non-cash payments and through a billing company with full traceability. There is no hidden cash/tax avoidance/undeclared income at all.
Can I make an arrangement with the revenue/accountant for this to happen?
If I pay tax on what I receive each year then there is no need to over-complicate things with impairment allowance/bad debt write and applying for rebates etc!
 
The standard way of accounting for income is on the date of invoice as advised by your accountant.

You can account for VAT on a monies received basis by applying to Revenue for their approval, which may be granted if your turnover is below €2m .

I do not think that there is any possibility to account for Income tax on a monies received basis.

In the real world may small traders issue pro-forma invoices initially then issue the actual invoice on receipt of payment. Of course a picky supplier may refuse to pay on that bias.

Basically income tax is based on income when invoiced, you might find a work around.
 
cremeegg said:
The standard way of accounting for income is on the date of invoice as advised by your accountant. ...........
Basically income tax is based on income when invoiced, you might find a work around.
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As my accountant advised me when I became self-employed: you can choose the date on the invoice; you can't choose the date it gets paid.
 
You do not pay Income Tax on the amount invoiced, you pay Income Tax on your Trading Profit.

This is not at all the same as your turnover or invoiced sales.

You need to get an accountant if you do not have one or a new accountant if you do :)
 
Amygdala said:
Thank you all for your replies.
From my point of view, I can not afford to pay tax on money I have not received.
Can I not just pay tax on the money that was paid to me in each year? These are non-cash payments and through a billing company with full traceability. There is no hidden cash/tax avoidance/undeclared income at all.
Can I make an arrangement with the revenue/accountant for this to happen?
If I pay tax on what I receive each year then there is no need to over-complicate things with impairment allowance/bad debt write and applying for rebates etc!
Click to expand...
I cannot believe that that you think you pay tax on revenue as opposed to profit.

A fundamental business tenet, this has to be a wind up , if not I worry about our entrepreneurial future.
 
cremeegg said:
The standard way of accounting for income is on the date of invoice as advised by your accountant.

You can account for VAT on a monies received basis by applying to Revenue for their approval, which may be granted if your turnover is below €2m .

I do not think that there is any possibility to account for Income tax on a monies received basis.

In the real world may small traders issue pro-forma invoices initially then issue the actual invoice on receipt of payment. Of course a picky supplier may refuse to pay on that bias.

Basically income tax is based on income when invoiced, you might find a work around.
Click to expand...
Pro forma invoicing has been illegal here for 20 years.
 
jpd said:
You do not pay Income Tax on the amount invoiced, you pay Income Tax on your Trading Profit.

This is not at all the same as your turnover or invoiced sales.
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Can you explain that please. (this is intended sarcastically)
 
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