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Where Taxpayers and Advisers Meet

When is income taxable?

paradiselondon
Posts:8
Joined:Tue Dec 15, 2015 6:02 pm
Re: When is income taxable?

Postby paradiselondon » Thu Jan 06, 2022 3:02 pm

I suppose that another way of asking the question is "At what point is income taxable? When it is owed or when it has been paid?"
(not wishing to add confusion to the original question though).

pawncob
Posts:4877
Joined:Wed Aug 06, 2008 4:06 pm
Location:West Sussex

Re: When is income taxable?

Postby pawncob » Thu Jan 06, 2022 8:23 pm

I would venture that a verbal notification is equivalent to an invoice.
With a pinch of salt take what I say, but don't exceed your RDA

paradiselondon
Posts:8
Joined:Tue Dec 15, 2015 6:02 pm

Re: When is income taxable?

Postby paradiselondon » Thu Jan 06, 2022 8:35 pm

Thank you.

So, on that basis would you say that the amount is taxable now and should be declared in Self-Assessment?

By extension that would mean that once work has been invoiced, it becomes taxable irrespective of whether payment has yet to be received.

pawncob
Posts:4877
Joined:Wed Aug 06, 2008 4:06 pm
Location:West Sussex

Re: When is income taxable?

Postby pawncob » Fri Jan 07, 2022 10:57 am

Why don't you just issue the invoice? Problem solved, he becomes a debtor.
Yes, you pay tax on income not yet received. That's why you chase debtors.
With a pinch of salt take what I say, but don't exceed your RDA

paradiselondon
Posts:8
Joined:Tue Dec 15, 2015 6:02 pm

Re: When is income taxable?

Postby paradiselondon » Fri Jan 07, 2022 11:07 am

They'd asked me to hold off on issuing the invoice but I can see from your very helpful comments that technically payment has been agreed and that, as a debt, it is taxable now.

Thank you very much for bearing with me on this one!

topgearfan2008
Posts:4
Joined:Wed Jan 12, 2022 12:24 pm

Re: When is income taxable?

Postby topgearfan2008 » Wed Jan 12, 2022 10:21 pm

Declare it in the tax year, when you have physically received the money.

You don't want to pay tax for the amount, if they then fail to pay!

Lambs
Posts:1579
Joined:Wed Aug 06, 2008 3:15 pm

Re: When is income taxable?

Postby Lambs » Thu Jan 13, 2022 2:45 am

I am afraid that the previous contribution by T is misleading.

And it pains me to say this, but... B's point was valid.

As was alluded to in earlier posts in this thread, income recognition by reference specifically to the time at which cash is received - cash accounting - is permissible as a deviation from standard accounting practice ONLY if the business has formally adopted the cash basis for tax purposes. Other than that, it would typically be as soon as the economic benefit is likely to flow to the taxpayer (which could easily be a significant period of time prior to raising an invoice), AND (loosely) that the quanta of income and associated costs may be gauged with satisfactory accuracy. Again, simply, in the absence of having 'officially selected' the cash accounting basis for tax purposes, it will be when you've done the work and have a decent grasp of the corresponding income and costs involved. I realise that some of my accounting colleagues will be aghast at such gross over-simplification (no doubt some tax practitioners as well) but that's a brief para to summarise what would normally be pages of considered discussion. The rules differ slight for the provision of goods but I have inferred it was a supply of services.

I trust this is useful.

Regards,

Lambs


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