Accrual vs cash accounting for sole trader.

E

Every_blooming

Registered User
Messages
36
Currently in the process of restarting my sole trader consultancy business following period of employment. While abroad my accountant insisted on using cash accounting method for cash flow and calculating income tax on same basis. My irish accountant informs he will compute income and tax liability on an accrual method of account. The nature of my work is there will often be a significant delay between completing work/invoicing and receiving payment. Is accruals acceptable for sole trader professional services?
 
Thanks, my irish accountant was also adamant that accruals was the correct approach.
Funnily enough in the country I previously had a sole trader business in the tax authority strongly advised that sole trader personal services based on providers skill/expertise (rather then trading stock) must be reported on a cash basis.
 
I think small businesses in the UK can use cash accounting.

And your accountant here was correct so perhaps you can have more faith in them now
 
Australia, the ATO have issue taxation rulings to guide tax payers / accountants. They state where the personal services /sole trader income stems from a person's skills/knowledge/expertise/effort the cash (receipts) method "generally" produces the correct reflex of income.
 
Different views, it changed here a few years ago.

It can cause cash flow issues for businesses and there was a lot of grumbling by professional firms at the time of I recall but that ship has sailed. Income is accounted for when earned and collection of cash is a business administration issue.

Definitely something to build into your business plans.
 
Yes, my australian accountant had a number of clients who had income sources in different countries, income tax calculated on accruals basis in source country and cash basis in Australia, led to a lot of headaches apparently
 
You must log in or register to reply here.
Back
Top