do I pay tax on income still owed?

R

Reuben

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Hi. I am a sole trader consultant. If I have issued an invoice but have not received payment by the end of a financial year, do I pay tax on the money owed at the end of that year, or do I pay it in the following tax period, when the money is actually in my bank account?
 
Reuben said:
Hi. I am a sole trader consultant. If I have issued an invoice but have not received payment by the end of a financial year, do I pay tax on the money owed at the end of that year, or do I pay it in the following tax period, when the money is actually in my bank account?
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You should pay tax for the period in which the invoice is issued, rather than the period in which the invoice is paid
 
If you don't include the invoice you would have to include it as work in pogress and get taxed on it anyway.

The figure will carry forward as a debtor. You won't get taxed on it a second time either way
 
I thought you had a choice as to whether your accounts are on an invoiced basis or on a cash basis, up to a certain level of sales ?
 
That's certainly true for [broken link removed] but I don't know about income tax. Can anyone else clarify?
 
Dearg Doom said:
That's certainly true for [broken link removed] but I don't know about income tax. Can anyone else clarify?
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Thats is true with VAT the "cash received" or "invoice basis" provided you qualify
Accounts must be prepared on an accruals basis i.e if you are due to get paid you are taxed on that amount
Of course if the debt goes bad you would account for it appropriately and would in effect clawback the tax paid i.e if that was the only income for the year there would be a loss when you write the debt off the following year
 
Ok I have a similar problem to above but with a slightly different aspect.

I have invoiced for an amount plus VAT 21%, however for various reasons I have only received the amount excluding VAT?

So as far as I know being VAT registered I am obligated to pay the VAT, do I pay the 21% of the invoiced amount, or pay tax on what I recieved.

Now if I also pay this VAT couldn't the other company claim it back in their V3, e.g. claim back what they never paid?
 
gallon said:
Ok I have a similar problem to above but with a slightly different aspect.

I have invoiced for an amount plus VAT 21%, however for various reasons I have only received the amount excluding VAT?

So as far as I know being VAT registered I am obligated to pay the VAT, do I pay the 21% of the invoiced amount, or pay tax on what I recieved.

Now if I also pay this VAT couldn't the other company claim it back in their V3, e.g. claim back what they never paid?
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If you are not going to pursue the remaining debt issue and send them a credit note for the shortfall and include VAT on it.

E.g. Original Invoice E100 + VAT E21 = Total E121

Payment received E100

Issue credit note for E21 (inclusive of VAT) which is Net E17.36 plus VAT E3.64
 
Ok so I issue a credit note to the company (inclusive of VAT) ok that sounds fine.

To be honest although annoyed not worried about them. However I am worried about the taxman.

So do break down the sum received E100 into Net 82.64 plus VAT 17.36. Therefore pay the taxman 17.36?
 
gallon said:
Ok so I issue a credit note to the company (inclusive of VAT) ok that sounds fine.

To be honest although annoyed not worried about them. However I am worried about the taxman.

So do break down the sum received E100 into Net 82.64 plus VAT 17.36. Therefore pay the taxman 17.36?
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That will be the eventual outcome as credit notes would reduce your VAT sales. They may end up on different returns however as depending on the date of the credit note it might fall into a different VAT return period.

Note that even though you are not worried about them you need to send them the credit note as otherwise they might claim the VAT on only the gross invoice.
 
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