When to declare income when self employed

[laois1]

Hi sorry if this is a stupid question. A certain accountant wants to change the way tax is being declared. Say a company invoices for services in sept 13 but doesn't receive payment til January 14 in which tax year should the income be declared ? I have always understood that you pay the tax when the money is received ie if its in jan 14 then it will be part of 2014 tax return. It's one amount that happens to be higher than normal and he is making a fuss saying that if revenue do an audit then trouble could ensue as they are doing more investigations. The problem is there is always a lag of 3 months or sometimes up to 2 years in getting paid therefore if you go by this approach then all money received jan- march whether in small or large amounts will be from invoices in 2013 not just this one single large payment. Sometimes you dont get paid at all so therefore how can you pay tax in the year in advance. It doesn't make sense to me as it was always done on a jan - dec basis up until now. Any advice ?

 

[Nige]

Your accountant is right and it is an area that Revenue Auditors are focusing on more as it is easy money for them if the debtors/work in progress are understated at the year end.

 

[laois1]

Not the answer I wanted to hear. This is not the way accounts have been done in the past. Have you any concrete examples of where revenue have come after businesses for this ? Are accountants declaring their income like this. I get billed by my accountant in nov and pay him in January is he declaring my income in the previous year I don't think so !!! If withholding tax has already been paid on the amount surely revenue would not come after a company in that situation ???

 

[T McGibney]

Are accountants declaring their income like this. I get billed by my accountant in nov and pay him in January is he declaring my income in the previous year I don't think so !!!

Of course he is, the accruals basis is one of the fundamental principles of accounting - if he's not, you shouldn't be dealing with him.

For a very small microbusiness, the year-end cutoff may not be that relevant if the amounts involved are minor, but you say that in your case there is one amount that happens to be higher than normal and hence the concern. You should be glad he cares, some accountants don't bother to watch out for their clients.

 

[laois1]

Why pick on this one large amount when every penny earned from jan - march is from invoices in the previous year. I don't get how this is now an issue when it has not been in the past. Withholding tax has been deducted at source for these payments so its not as if the revenue have nothing received on the payments.

 

[Nige]

the fact that withholding tax has been applied doesn't impact on anything.

I have experience of Revenue Audits where one of the first things they ask for is details of debtors and work in progress and they go on then to ask for statements to show when the payments received in the early part of the following year were invoiced.