Tax and accruals

miniminimouse

Hi there,

My client is sole trader. His financial year ends 31 July and he wanted to know about taxation.

The question is:
if he receives an invoice in July but pays it in August, then for the taxation purposes, will it reduce his tax amount for this year or for the next one when the payment is made?

Many thanks in advance

Tasha

truecockney

For corporation tax purposes, it will reduce liability for the current financial year.

For VAT (if charged) it depends solely on whether they are accounting for VAT on an accrual basis, or a cash accounting basis. If it's an accrual basis, then they will reduce the amount payable for the accounting quarter. If on a cash accounting basis, he would reclaim the VAT once the invoice is paid.

Bluewednesday

The client is a sole trader so corporation tax doesn't apply.

However accounts are still prepared under the accruals basis which will be how he is taxed so yes it's allowable for tax too