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Self Assessment

kelsmickkelsmick AberdeenRegistered Posts: 89
Hi All,

I'm wondering if someone can give a bit of advice.

I have been approched by someone to do a tax return. They started their self employment in April 15 however she has told me that people had paid her at the end of march for her services (She is a dog walker so is paid in advance for services) Although she didn't start working until the current tax year she was paid in the previous so i'm a little confused as to if she would need to declare the income she received in March as her dates for self employment wouldnt be until April 15.

Any advice would be great.

Thanks in advance,



  • phoenixdphoenixd LondonRegistered Posts: 50
    edited January 2016
    Hi. I see where the confusion is. Your client started work pre April 2015 ie 2014/2015 because she obviously solicited for business before April and was paid some advance money in that tax year albeit for work to be carried out in the following one. The start date for self employment isn't when the work is first done. All you need to do is allocate the invoice she issued pre April to 2014/2015 on the return.
  • kelsmickkelsmick AberdeenRegistered Posts: 89
    edited January 2016
    Yeah thats exactly it, she started in the current tax year but got paid for the services in the previous
  • phoenixdphoenixd LondonRegistered Posts: 50
    Hi K. No, you misunderstood. She started self employment in the previous year because if she was invoicing clients, she would have invoiced prior to the advance being paid. If any paperwork changed hands, check the dates. The above assumes traditional ie accrual accounting. If she were on cash accounting, the atgument would still hold valid as she would have had to declare any cash received regardless of when the work was carried out. Hope this helps.
  • phoenixdphoenixd LondonRegistered Posts: 50
    Really? Deferred Income is only reported in the accounts in the year the service is carried out? mrme89, are you stating that loss makers (referring here to those who make no income but acquire costs) can simply justify 'no tax return' stance since 'there would be no income to report'. Do you have a link to support this? Costs pre-trading can of course be brought forward but income (deferred or not) must be declared unless there is a good reason not to. The question we should be asking is, is there a tax-efficient reason why the client wants to 'start' in a later tax year?
  • burgburg Experienced Mentor GloucesterModerator, FMAAT, AAT Licensed Accountant Posts: 1,441
    If it is indeed deferred income as the OP appears to state then I would not complete an ITR for 2014/15. I would start at April 2015 bringing in pre-trade expenses if any.

  • phoenixdphoenixd LondonRegistered Posts: 50
    edited January 2016
    I won't descend to insults. To clarify, I've been an accountant for close to a decade so I know exactly how the system works. If you find the letters confusing, they relate to a bachelors degree, a post graduate degree, accountancy bodies and oh, I also have acca under my belt.

    Now back to the real issue, true, common sense in relation to time/money can be applied but when you have a tax inquiry, you will find that hmrc only sticks to the facts. Re obligation to file, if you don't report that you are trading, there'll be no reason for the hmrc to issue a notice. That's no excuse.

    Re deferred income and P/L, I didn't say it will hit the P/L, I said it should be reported in the accounts. Even non-accountants know that DI goes on the balance sheet. Do you have a link to what you stated, ie, no point in tax return if there's no accrued income. Wonder how that stance plays out if cash accounting is used.

    You appear to be in an argumentative mode but I prefer to engage with those who don't comment anonymously. I stand by every comment I make and will readily be called out on any. What about you? Care to reveal your identity? It's been an excellent month, don't spoil it. Have a great and productive new year.
  • CeeJaySixCeeJaySix Well-Known Registered Posts: 645
    edited January 2016
    http://www.hmrc.gov.uk/manuals/salfmanual/SALF210.htm summarises the legislation referred to by mrme.

    No profits and no net liability to income tax for the year (as the income is deferred) = no requirement to notify chargeability.

    I'd argue that until she starts to provide services (in the new year) she's not trading (possibility of pre-trade expenditure but nothing more) therefore again no requirement to notify. This is a point of case law and is not always clear cut, especially in service industries (it could also be argued that placing an advert to provide services marks the start of trade, rather than actually beginning to provide the services), so we'd have to know all the facts to make a best judgment. However given the very small amount of tax we'd be talking about (unless she's walking the Queen's corgis) I doubt very much HMRC would deem it worthwhile to argue the point.

    Of course if the trade DID begin in 14/15 she would have had to notify self-employment by 5 October 15 to avoid penalties. So in the client's interest without clear legislation to the contrary I'd be going for 15/16.

  • phoenixdphoenixd LondonRegistered Posts: 50
    s7 proves the reporting case where cash basis accounting is used and we don't know that the client isn't going for that. As previously mentioned, common sense should be applied but the facts will rule in an inquiry. It's been a good banter. I need to get some breakfast and start work.
  • phoenixdphoenixd LondonRegistered Posts: 50
    I'm guessing you are from my ex's part of the UK. I could never tell when he was serious :). What do you suppose a dog walker should go for? Not really a business with a high number of debtors/creditors to justify the accrual method. Re tax 'in'equiries, you work that out. I pray you never have to deal with one. Have you had breakfast? I must go get one before I faint. Have a good day.
  • lisajayne1lisajayne1 Registered, MAAT, AAT Licensed Accountant Posts: 53
    I just want to say I thoroughly enjoyed reading this feed. & yes I learnt something along the way.. all with a big smile on my face
  • JawzJawz New Member West MidlandsRegistered Posts: 53
    I believe this is what this forum is all about...

    We will not always agree on certain things, but so long as respect and proper dialogue is maintained, then I personally think it is healthy to a have a nice accounting debate.... Bravo to phoenixd and mrmr89, like lisajayne said, I also thoroughly reading the feeds lol

    Now back to the post...

    I was just wandering if the client could use the revenue recognition rule to justify that the income is actually for the April 15 tax year.

    Isn't it right that, the accounting principle is that revenue should only be recognise when all the risk-in this case (providing the service of walking the dog) and rewards (getting paid for it) have been met. The client has been paid for it (rewarded) but no service has been performed and thus the risks still remains.

    Therefore, in my view there is no sales to recognised until the service is perform and definitely no tax to pay. The payment would simply be recognise as deferred income (DI) in the 14/15 tax year. This is could be perfectly justified if HMRC were to make an enquiry.

    I maybe wrong but these is something I just remembered from the top my head so don't quote on me it mrmr89 lol. Perhaps, I ought to do some recap on revenue recognition principle.
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