Tax return

[Bear1984]

Hi all,

I am filling out my tax return at the moment for the first year of my business. I'm getting myself a little confused with it.

With my line of work, I take a booking fee and then the remaining balance a month before I actually do the work. So an example would be for a particular client, I received a 25% booking fee in December, but didn't receive the remaining fee til June and did the work in July. Would it be easier to record the booking fee in the same tax year as when I carried out the work, or is it better to record it as when I received it?

I have made a slight loss in my first year, which I'm not surprised with and wasn't as much as I thought it could be. It goes on to say about "Loss from this tax year set-off against other income for 2010-11" and "Loss to be carried back to previous year(s) and set-off against income (or capital gains)". I don't understand these. I don't have previous years so I'm guessing I ignore the second one, and I'm not sure what to do about the first year. I was also studying whilst doing my business so I received a student loan, student grants and benefits.

And lastly I also don't understand the bit where it says underpaid tax in PAYE.

I've tried reading through the self help sheets that they have online which has helped me through the rest of the forms, but I'm just stuck on these particular ones, and was hoping someone could explain it to me in a simpler way for my overloaded brain to understand lol. Thanks.

I am also new to this area, but my understanding is this:

You should hold the deposit as a liability - i.e. you owe your customer the work that will be completed next July, so it is your liability. However, you do not show the deposit as income now. When you carry out the service next July, you would then reduce the amount of your liability by the deposit and show that as part of your income at that time. This assumes that you will incur costs at the time that you deliver your service, so your income will match with the costs that relate to it.

As for carrying forward & back, tax rules in the UK allow a company that makes losses one year to either reclaim tax paid in previous years or carry it forward to reduce any tax bill for future years. I'm not sure how many years forward or back you can go, but as you're in year 1 all you need to know is that any loss you make this year can be carried forward and will reduce any profits you make next year.

I don't know about the PAYE bit, sorry!

Loss - either offset it against your other earnings (PAYE if you have) or carry forwards.
Ignore all the boxes about carrying back and underpaid PAYE.

The deposit you take .... is it refundable if the booking does not go ahead - in which case the income should be declared when it is definite.
If it cannot be refunded then book it on a cash basis
"revenue recognition" has caused a headache for FAR larger businesses than yours - Enron for example!

Thanks both of you.

The deposit isn't refundable, so I shall put it in line with the work carried out. I shall carry it forward as well, and ignore those PAYE boxes too.

Thanks! Makes more sense to me now :)