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Where Taxpayers and Advisers Meet

When is income taxable?

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

Postby paradiselondon » Fri Oct 29, 2021 6:12 pm

During the 2020-21 Tax Year I did some work for a private client but have not yet invoiced for it as they are unable to pay it at the moment.

Do I declare this income in my 2020-21 tax return (and pay any tax due) despite not having been paid yet?

Thank you!

pawncob
Posts:4876
Joined:Wed Aug 06, 2008 4:06 pm
Location:West Sussex

Re: When is income taxable?

Postby pawncob » Sat Oct 30, 2021 10:04 am

It's not due until it's invoiced, so it falls in the current year. (But you could show it as W.I.P. if it's advantageous)
With a pinch of salt take what I say, but don't exceed your RDA

bd6759
Posts:3744
Joined:Sat Feb 01, 2014 3:26 pm

Re: When is income taxable?

Postby bd6759 » Sat Oct 30, 2021 11:06 am

It's not due until it's invoiced,
Which accounting convention is that?

pawncob
Posts:4876
Joined:Wed Aug 06, 2008 4:06 pm
Location:West Sussex

Re: When is income taxable?

Postby pawncob » Sat Oct 30, 2021 11:56 am

@bd6759: Not an accounting convention, but an economic fact. The customer doesn't know he owes it until he's told how much it is.
With a pinch of salt take what I say, but don't exceed your RDA

bd6759
Posts:3744
Joined:Sat Feb 01, 2014 3:26 pm

Re: When is income taxable?

Postby bd6759 » Mon Nov 01, 2021 12:53 am

This isn’t about the customer. It’s about a trader recognising income. The date an invoice is given has no bearing.

It’s either the time when the service is provided, or if using the cash basis for tax purposes, the time payment is received.

pawncob
Posts:4876
Joined:Wed Aug 06, 2008 4:06 pm
Location:West Sussex

Re: When is income taxable?

Postby pawncob » Mon Nov 01, 2021 11:43 am

It still has to be quantified before it can be counted as income. So far this hasn't happened (subject to OP providing a firm estimate)
With a pinch of salt take what I say, but don't exceed your RDA

bd6759
Posts:3744
Joined:Sat Feb 01, 2014 3:26 pm

Re: When is income taxable?

Postby bd6759 » Mon Nov 01, 2021 5:54 pm

The OP said he hasn’t issued an invoice because the customer can’t afford to pay. So both he and the customer must know how much it will be to arrive at that conclusion.

Recognising income based on customers ability to pay is a new one. Why did I ever bother with bad debt provisions.

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

Re: When is income taxable?

Postby paradiselondon » Thu Jan 06, 2022 2:34 pm

My apologies, I should have been more specific I think in my original post.

The amount owed is known (say, for example, £10,000) as it was calculated by number of hours worked x hourly rate. The total owed has been recognised by the client but they are (still) unable to pay.

I am still pondering therefore whether this has to be declared in Self-Assessment. Tax due would be paid on an agreed amount but that has not yet been received.

Is this what HMRC expects?

pawncob
Posts:4876
Joined:Wed Aug 06, 2008 4:06 pm
Location:West Sussex

Re: When is income taxable?

Postby pawncob » Thu Jan 06, 2022 2:47 pm

What do you mean by "recognised by the client"?
Have you notified him of the amount due or not?
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 2:58 pm

Yes, and the amount has been agreed (just not paid).


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