Taxed at time of earning, or time of withdrawal to my bank account?

Discussion in 'Accounts & Finance' started by Tom29141, Aug 8, 2019.

  1. Tom29141

    Tom29141 UKBF Newcomer Free Member

    3 0
    Hi all,

    I've recently started making some money online using Fiverr.com, and am now above the tax-free allowance threshold.

    My query is, am I mandated to pay tax at the time of earning, e.g. when the money becomes available to withdraw from Fiverr to my bank account, or at the time it enters my bank account? Currently, I could earn money in say June, which then sits on Fiverr until I withdraw it to my account, in say August.

    I ask, as I move to Canada later this year, and if I am taxed at the point of withdrawal, and not at the point of earning, I may well leave the money in my account and choose to withdraw to my Canadian bank at a later date (and of course pay any relevant taxes).
     
    Posted: Aug 8, 2019 By: Tom29141 Member since: Jul 22, 2019
    #1
  2. Newchodge

    Newchodge UKBF Big Shot Free Member

    12,301 3,187
    You submit an annual tax return which covers your annual income at the time of receipt from your client, or the date of your invoice. I don't know how Fiverr works, do you invoice them? If so it is that date. If not, then it would be the date the money is available to you, ie the date you COULD withdraw it, not the date you choose to do so.
     
    Posted: Aug 8, 2019 By: Newchodge Member since: Nov 8, 2012
    #2
  3. Alex_B

    Alex_B UKBF Newcomer Free Member

    5 0
    Hi,

    So, firstly you need to notify HMRC that you are self-employed, I assume you are a sole-trader so search"notify hmrc of self employment" and follow the instructions on the gov site (cannot post links yet, sorry)

    The Tax year runs from the 1st of April to the 31st of March and you have 9 month from this point to submit your personal tax return (i.e. by the end of January the following year).

    Looking briefly at Fiverr, it seems that you do not raise invoices, in which case you would probably be classed as cash accounting and the tax becomes due at the point you are able to access the funds (effectively Fiverr act as a very basic bank account).

    So, if you have not earned any money before April this year, you will not be required to physically pay the tax until January 2021, although you are welcome to do so sooner.

    If things get more complicated, seek advice from an accountant.
     
    Posted: Aug 8, 2019 By: Alex_B Member since: Aug 5, 2019
    #3
  4. SteLacca

    SteLacca UKBF Ace Free Member

    1,395 271
    The correct basis of assessment is accruals basis, which means that you are taxed at the date of invoice (or equivalent). If using the cash basis you are taxed when the money is available to you.
     
    Posted: Aug 8, 2019 By: SteLacca Member since: Jun 16, 2016
    #4
  5. MyAccountantOnline

    MyAccountantOnline UKBF Legend Full Member

    12,700 2,354
    The tax year is actually 6 April to 5 April.
     
    Posted: Aug 8, 2019 By: MyAccountantOnline Member since: Sep 24, 2008
    #5
  6. MyAccountantOnline

    MyAccountantOnline UKBF Legend Full Member

    12,700 2,354
    Have a read here it explains who can use the cash basis https://www.gov.uk/simpler-income-tax-cash-basis
     
    Posted: Aug 8, 2019 By: MyAccountantOnline Member since: Sep 24, 2008
    #6
  7. chalkie99

    chalkie99 UKBF Enthusiast Free Member

    842 253
    What a clown!

    Runs an accountancy website and cannot get even the basics right.

    I feel sorry for anyone who relies on this "expertise".
     
    Posted: Aug 8, 2019 By: chalkie99 Member since: Nov 14, 2008
    #7
  8. Alex_B

    Alex_B UKBF Newcomer Free Member

    5 0
    Wow! Had a bad day? Please try to be constructive in future, maybe emulate Nicola who posted to help the OP, as well as correcting my error.

    I'm one of a team of people and not an accountant myself, they are busy doing work for clients. I refer to them for advice on specifics. As to the error, well we're all human and it's been a busy week, in any case, the actual advice stands.

    The specific question is when the tax is payable, which in either case is still by the end of January following the tax year the income is recorded.

    To an extent, whether or not he is on cash accounting only matters when it comes to submitting the return and if any of the work and payments straddle a tax year. Cash accounting was recommended as it is likely to be simpler in this case, especially as he states he will be moving to Canada. Of course, depending on specifics, he may prefer to use accrual accounting, which is where consulting an accountant might be advisable.
     
    Posted: Aug 8, 2019 By: Alex_B Member since: Aug 5, 2019
    #8
  9. chalkie99

    chalkie99 UKBF Enthusiast Free Member

    842 253
    No, my day has been fine. Thank you for asking.

    Now, the constructive bit:-

    Unfortunately, you have just signed up here, have used your company's logo/name as your avatar and have linked your website to your profile together with a call to action touting your services.

    Only after being pulled up on something very basic have you started to back track and say you are not actually an accountant.

    There is a regular procession of people who post on these pages seeking advice and they are likely to take your comments (wisely or otherwise) as correct and informed information.

    What do your employers think about you representing them in this way?
     
    Posted: Aug 8, 2019 By: chalkie99 Member since: Nov 14, 2008
    #9
  10. Alex_B

    Alex_B UKBF Newcomer Free Member

    5 0
    Further to your question above, it seems to me that this is a question about Revenue Recognition. If so, it is worth mentioning that FRS 102 under Revenue recognition for rendering of service makes clear that revenue to be recognised “Requires that when the outcome of a transaction can be estimated reliably, an entity shall recognise revenue associated with the transaction by reference to the stage of completion of the transaction at the end of the reporting period.”

    It further states that the outcome of a transaction can be estimated reliably when all the following conditions are met:

    (a) the amount of revenue can be measured reliably;

    (b) it is probable that the economic benefits associated with the transaction will flow to the entity;

    (c) the stage of completion of the transaction at the end of the reporting period can be measured reliably; and

    (d) the costs incurred for the transaction and the costs to complete the transaction can be measured reliably

    Given the 2 scenarios you present, the revenue becomes recognisable at the point “when the money becomes available to withdraw from Fiverr”. Care is needed to ensure that revenue is in fact not due for recognition at an earlier stage, such as raising an invoice. The timing of a legitimate expectation of the revenues has a bearing.

    Tax due is of course is in fact a different matter. It does not solely depend on revenue or income recognised. Revenue expenses incurred wholly and exclusively for the business and capital allowances etc. reduce the amount subject to tax i.e. are allowable deductions. Further allowances and reliefs could be available depending on your personal situation. The rate of tax applicable depends on your overall taxable income and the respective tax bands applicable to each source and/or class of income.

    Hope the above is helpful.
     
    Posted: Aug 12, 2019 By: Alex_B Member since: Aug 5, 2019
    #10
  11. Tom29141

    Tom29141 UKBF Newcomer Free Member

    3 0
    Hi all,

    Thank you for your replies and advice.
     
    Last edited: Aug 16, 2019
    Posted: Aug 16, 2019 By: Tom29141 Member since: Jul 22, 2019
    #11