Do I need to split an invoice over two years?

[IanIan]

Hi there,

I'm a self-employed IT contractor. Lets say I do some work that starts at the end of one tax year and finishes at the start of the next and then I send an invoice out. Am I supposed to split the value of the invoice such that some of it is considered income for the earlier year and the rest of it is considered for the later year?

Cheers, Ian.

[IanIan]

I don't know whether this makes a difference but I'm a sole trader and I don't run an Ltd so I don't need to make up formal accounts.

[mullet]

It depends. If it is just a week's or a month's work, then it doesn't really matter. But if you only invoice (say) every three months then it would matter. The important point is to apply the same treatment from year to year.

[IanIan]

Thanks for your reply mullet!

But if you only invoice (say) every three months then it would matter.

I don't understand what you mean by invoicing every three months this. I'm just refering to sending out a single invoice for a single job where the actual work that was done spanned a tax year.

[mullet]

All I meant was this. Say both the worker and the client are very relaxed about payment and invoicing, and an invoice is issued 1 month after the year end, for a 3 month period. If turnover/income was based purely on invoices issued, then two months' income would be declared in the following (wrong) year. The correct accounting treatment would be to create a debtor for the value of two months' work (debit) and increase sales by that amount (credit). It is called accrued income.

You don't need to get too hung up about it; what matters is that all income is included in your accounts/return and that your accounting system is broadly consistent from year to year.

[IanIan]

Haha... thanks! OK, I will try not to get too hung up about it.