Sole-Trader Tax

[M178591]

When do I become liable for tax running as a sole trader? Is it when the invoice is issued or is it on the actual sums received irrespective of the actual amounts still outstanding on invoice(s)?

Thanks

Mark

 

[MikeH]

Do you mean tax on profit or VAT?

 

[frauke]

When an invoice is issued - that is income.

Work in progress is on occassions also considered as income even if the invoice is not issued!

 

[M178591]

I am refering to profit. I know that you are liable for VAT as soon as the invoice is issued unless you are on the cash accounting scheme and I know that for a Ltd company the liability arises when the invoice is issued, I just wondered what the situation for a sole trader is? As tax is done under the income tax regime I just thought that maybe for a soletrader that meant the liability for tax on profits arose when the money was received not when the invoice was issued.

 

[two sheds]

its when the invoice is issued (accruals basis), also if you incurred expenses before you issued an invoice you would want to include thoses expenses, it really when you set your stall out!

Julie

 

[M178591]

OK thanks. Another question then. If I end up in a situation where I owe £5000 in tax on sole traders profits, I understand that in my first year I will have to pay the £5000 and also 50% of this as well as a forward payment on next years tax so I actually have to pay £7500. What then happens next year? Does it effectivly reduce my tax next year by £2500 or does the same happen again next year. In other words, if my year 2 tax liability was £10,000 would I have to pay:
Year 2 tax owed £10,000
Minus £2500 year 1 overpayment = £7500 owed
plus 50% overpayment = £3750 (or would this be £5000 as 50% of the tax owed?)
So actual tax bill =£11250 (or £12500)

Thanks for your help everyone.

Mark

 

[two sheds]

as well as making the first payment on account in January, you will need to make a second istalment in July-both of these amounts will be taken into account the following january when your liability for the year is due, therefore if you have paid enough its covered. However, you will then have to pay half again for the year that you are in with a second instalment the following July and on and on...

 

[taxacc]

£12500. But, remember in this figure you've made a payment of advance tax for £ 5000.

 

[spigwell]

its when the invoice is issued (accruals basis), also if you incurred expenses before you issued an invoice you would want to include thoses expenses, it really when you set your stall out!

Julie

I always thought it was when payment was received not when invoice was issued. Issued unpaid invoices would go under money owed which is offset against profit for the current year. Not 100% sure of this though.

Gary

 

[two sheds]

no money owed to you does not go against profits, its included in the balance sheet


Julie