How can I manage a situation when an invoice is paid in the next financial year?
This money “belongs” to the past financial year or new fiscal year?
Profit & Loss Report for the last year (2015-2016) includes the value of that invoice, as well, even if this it’s paid in 2016-2017 financial year.
Thank you!
Self-employed or Ltd? I don’t know about the limited company case but in the self-employed case it depends whether you’re using the “cash basis” for your tax return, if you’re on cash basis then you report the money in the year when it is paid, if you’re not then you report it in the year that contains the date of the invoice.
1 Like
Thank you! I’m Self Employed. So I understand that is my choice when I report the money (the year)?
The simplest method for me is to report the money in the year when I issued the invoice.
https://www.gov.uk/simpler-income-tax-cash-basis is the official explanation of cash basis accounting, you should talk to your accountant about whether or not it would benefit you to use it (assuming you’re eligible).
1 Like
I would recommend that you have prelimary look at both cash and accruals basis then decide which option would be best for you.
Although I would with you and say that cash accounting is usually simpler if you are eligible.
Kind regards,
Chris
Thank you for details.
-
Cash Accounting - record money when it comes in and goes out of your business.
-
Traditional accounting (accruals basis) - records income and expenses when you invoice your customers or receive a bill.
What is happening if I use traditional accounting (accruals basis) and I submit my Self Assessment return at the end of the year and after that some clients decide to pay me some unpaid invoices for the last year? My Self Assessment return will not include this money.
At quickfile Reports I see a solution to select all the invoices for a particular period of time, I can’t find anything for select only the payments. So it fit better with traditional accounting?
These two methods can be interchanged in different years?
…
It’s easiest for me to choose all the invoices for a financial year, than to pick only invoices paid in a financial year.
On “traditional accounting” it’s all based on the invoice dates. If you’ve invoiced a customer but they haven’t paid you by the end of the year, you still have to declare and pay tax on the money even though you haven’t received it. But conversely you don’t get taxed again the following year when the money is paid as you’ve already accounted for it at the invoice date.
This is the big plus of the cash basis if you offer extended credit to your customers, you don’t have to pay the tax on income until after the customer has paid you. But again, if you take extended credit from your suppliers then on cash basis you can’t claim tax relief on your purchases until you’ve paid for them, whereas on traditional accounting you can deduct them as soon as they’ve been invoiced. I run a retail shop where I take credit from suppliers but don’t offer it to customers, so for me traditional accounting is more beneficial.
Most of the reporting is indeed accrual based, but under the sales and purchases drop down menus you’ll find an entry for “show payments”, the advanced search on that page lets you restrict to a particular date range
As explained in the gov.uk pages I linked to above, you can switch between the methods but you have to apply adjustments to make sure that everything has been taxed in one or other of the years and nothing has been taxed twice.
This si a very clear explanation, Ian. Thank you so much for your time.
“On “traditional accounting” it’s all based on the invoice dates. If you’ve invoiced a customer but they haven’t paid you by the end of the year, you still have to declare and pay tax on the money even though you haven’t received it.”
In this case what is happening with the money paid for tax if the customer never pays the invoice? You loose that money or what?
If it remains unpaid after (I believe) six months and you decide it is never going to be recovered then you can write it off as a bad debt, which is an allowable expense for this year that counteracts the income you declared last year.
I understood that, if I’m eligible for both, the general idea is: “make sure that everything has been taxed in one or other of the years and nothing has been taxed twice.”
Brilliant explanations.
Thank you!
Sorry. One minor correction is that you can classify it as soon as you are conifident that it will not be paid. For example if the company goes bust a week after the sale and you know you will not be paid then you could claim it as a bad debt.
Kind regards,
Chris
From an accounting point of view, yes, but I believe QuickFile only offers you the option as a one click shortcut on debts that are 6 months old. Any sooner than that you’d have to journal it manually (I guess credit debtors control 1100 and debit bad debt write off 8100).
That’s correct 
I believe:
Cr 1100 Full invoice amount
Dr 8100 Net value
Dr 2201 VAT value
At least, that appears to be what the bad debt process does, so that would just replicate it
Note: I’m not an accountant