Q about self-employed and tax returns

[PlayThatTax]

These are probably really stupid questions. I’m looking into self-employment-but how does it work when you get paid at different times to the work actually happeneing, do you just put in what you got paid that year? So if you get a deposit in Jan 19 for an event in Jan 20 you would count that in 18/19? Or if you did work in Jan 19 but don’t get paid for it until June 19 would it still be counted in the year 18/19? Or would you count that in the next year?

It is your invoice date that is the relevant date. So if you invoice in the 2020/21 tax year that amount should appear in your 2020/21 accounts even if you don’t actually receive the money until the next tax year.

If you use cash basis accounting then yes, it's exactly as you describe -- the date the money is received is the date it's counted, so if you're paid in Jan 2020 it's part of your income for the 2019-20 tax year, regardless of when the work is performed. This is the most common accounting method for the self-employed.

There's also accrual basis accounting, which is most common for limited companies. Then you would include income and expenses as occurring on the date of invoice.

I should add that you can choose which method to use, and you'll indicate which you've chosen on your self-assessment. It doesn't matter which, but obviously once you choose you have to stick with it!

You can change methods in a new tax year but there are corrections that have to be made if you do, and I'm sure if you did that more than once you'd be flagged for checks.

Limited companies have no choice - it's accrual accounting, so date of events determines the tax year, not invoice date nor payment date.

For sole traders, they have the choice of cash accounting (only payment date matters) or accrual accounting (event date). Cash accounting is obviously simpler, but not always best depending on timing of income/costs etc, and there are also limitations on relief for losses and timing of capital allowances.

Thanks for your advice everyone. Very helpful.