Tax: Invoice Date vs Paid Date

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Levi Thorne

I've decided to take a different route with my accounts (as in firing my leech of an accountant and doing it myself) but one question i can't seem to answer is with regards to taxation on certain dates.

Considering i invoice clients then generally give them a month to pay, i'm in a position where sometimes the paid date and the invoice date cross into different boundaries with regards to tax (e.g. invoice date might be 25/3/2010 and paid date is 8/4/2010 crossing corporation tax point). Which date would i use when calculating corporation tax? Thanks.
 
corporation tax is based on your annual accounts/profit, not invoices, isn't it?
 
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Levi Thorne

Hmm, so it's more tricky than expected... to be honest, i'm unsure how my accountant deals with it however, they only have to go on what i have to go on and thats basically the invoices and payment dates. Of course after checking the supply date from HMRC quickly, i'm now sure the date of supply for VAT is the invoice date, would this be the same for corporation tax?

My business shouldn't really be too hard to work against with this matter, i'm an IT consultant, i carry out work for clients then i invoice them based upon our trading terms. I don't deal with supplies, employees, just pretty much me at the moment which is why i decided to take this on myself.
 
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heliocentric

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Aug 29, 2008
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Considering i invoice clients then generally give them a month to pay, i'm in a position where sometimes the paid date and the invoice date cross into different boundaries with regards to tax (e.g. invoice date might be 25/3/2010 and paid date is 8/4/2010 crossing corporation tax point). Which date would i use when calculating corporation tax? Thanks.

Ltd Co accounts are prepared under the accruals concept. Revenue is charged to the accounts in the period in which it is earned, not paid.

Assuming you invoice a customer once the work is completed, then you still include the invoice raised on 25.3.10, as part of revenue to the year 31.3.10 (assuming that's your year end)

The unpaid invoice will sit as a debtor in the companies Balance sheet at the same date.

It's worth noting that the same concept applies to expenses, if you received a bill on 25.3 but paid it on 8.4, you deduct it from your profits to 31.3.10
 
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Kevin Hall

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Sep 10, 2008
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after checking the supply date from HMRC quickly, i'm now sure the date of supply for VAT is the invoice date, would this be the same for corporation tax?

Hi Levi

There are complex rules governing the date of supply for VAT. If your customers are all UK, if you always invoice promptly (with 14 days) after you have completed your IT services, if you never take payment in advance and if your services are never projects taking longer than a year, then you are probably correct.

Otherwise, you might need to rethink. Indeed, if you have overseas clients, you might need to complete EC Sale Lists too during 2010.

If you have any questions, please let me know.
 
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Levi Thorne

Thanks kevin, as mentioned though the only reason i've decided to lose my accountant is because i'm doing things very simply at the moment which didn't justify the large amount i have been paying them over the last year. Hence i think the supply date should be fine.
 
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Kevin Hall

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Sep 10, 2008
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I understand your view, Levi, but it is not a valid argument to say that the supply date is acceptable because you are doing things simply. The VAT Tax Point date is a matter of law and is independent of how simple you want the bookkeeping to be.

Of course, HMRC might be sympathetic if you have a VAT Inspection within the next 4 years. But please be aware that HMRC are now starting to crack down on errors and are assessing whether the error is deliberate, careless or an oversight. These attract penalties of up to 100%, 70% or 30% of the VAT respectively. Only errors arising in spite of reasonable care, or voluntary disclosure of careless errors, can avoid attracting penalties.

As I note in my previous post, it is possible that the invoice date is the correct VAT Tax Point. But HMRC do expect you to calculate the VAT Tax Point for each transaction as a whole and make your best attempt to get it right every time. You do not need an accountant to do this, but you should spend some time ensuring your bookkeeping system is up to the task.

If you have any questions, let me know.
 
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