tax returns, cash accounting, accrual and other things I don't understand

[hatwoman]

I'm stumbling my way through my first tax return as a s-e consultant. I've just been asked if a use cash accounting or generally accepted accounting....

I'm a simple soul, a sole trader, who does 3-4 projects a year for which I get paid in perhaps about 8 lump sums. my "accounts" comprise:

• one spread sheet which lists invoices, the date they were issued and the date they were paid. Where clients have been billed for expenses (rather than fees) these are listed, on the same spread sheet, separately.

• a second spread sheet with non-billable expenses.

would I be right in thinking I should just tick "cash accounting"? many many thanks lovely mners

Yes, you're Cash Accounting - your spreadsheets are much the same as the entries on your bank statements, and you would use the date that things are paid or when you pay to decide when they are liable for tax - which tax year they are in for example.

Accrual Accounting is when you look at your business, profits etc with all the bills and invoices related to the week (month, year, four-week period or whatever) that you did the work, and remove all those (nasty, usually) payment delays from the calculations: if you have lots of business to worry about, then the comparison between one week (month year,..) and the next is (accountants say) "better" than the cash-accounting view.

If you go to the bank for a loan, they will want both views of your business; and if you use some of your hard-earned cash for an accountant, they might be able to save you tax by accounting for the money in a particular way! Good luck with it!

thanks slarti. I'm trying my hardest not to get cross - and just came to the same conclusion re dates. if I just stick to the dates I received payments and not worry about when exactly I did the work it makes my life a whole lot easier