Pages in topic:   [1 2] >
New revenue accounting basis for self-employed people in the UK
Thread poster: Claire Cox

Claire Cox
United Kingdom
Local time: 15:50
French to English
+ ...
May 8, 2007

I've just had a 'phone call from my accountant letting me know that the Inland Revenue have changed the way they look at the accounts for self-employed people in the UK with effect from 2006/2007. Whereas before I've always done my accounts on a "receipts" basis, apparently that is no longer acceptable. You know have to declare work invoiced, even if not received before the end of your tax year and an estimate of work in progress, i.e. work started but not finished or invoiced before the end of the tax year. Obviously this is of considerable benefit in terms of the Revenue's cashflow, but an absolute nightmare for the poor freelance! Calculating it will be a real pain when you take into account currency fluctuations, and heaven knows what you do if you're not actually paid at all for something you've already been taxed on under these new rules....

Admittedly, this should even out in future years as work invoiced but not paid in this year's accounts, will then come off next year's accounts, but certainly in my case, this year, it means I'll be paying over £1000 more tax than I thought - which is a bit of a shock!

I just thought I'd mention this for those UK translators who do their own accounts and might not be aware of the new rules. Good luck!

[Subject edited by staff or moderator 2007-05-08 18:08]


Direct link Reply with quote
 

Carole Paquis  Identity Verified
United Kingdom
Local time: 15:50
Member (2007)
English to French
Thanks May 8, 2007

Hello,

thank you very much. I was just starting to look at my Inland Revenue paperwork...so it comes handy.

Carole


Direct link Reply with quote
 
lexical  Identity Verified
Spain
Local time: 16:50
Portuguese to English
Welcome to the real world May 8, 2007

Invoice-based tax accounting is what we have in Spain (and in many other European countries I suspect). I think the UK may be fairly unusual in allowing receipts based tax accounting. We have an allowance of (I think) 5% a year for bad debts - heaven help you if you lose more. Fortunately I've never had to avail myself of it.

Of course it hurts to pay tax on money you haven't yet had a smell of - and of course it's designed to boost the Exchequer's revenues at your expense, like all of Gordon Brown's stealth taxes.

Still, it could be worse - there are countries that make you pay over a minimum tax which they hold for up to 3 years.


Direct link Reply with quote
 
Renate Reinartz  Identity Verified
Germany
Local time: 16:50
English to German
Fire your accountant May 8, 2007

Claire Cox wrote:
I've just had a 'phone call from my accountant letting me know that the Inland Revenue have changed the way they look at the accounts for self-employed people in the UK with effect from 2006/2007. Whereas before I've always done my accounts on a "receipts" basis, apparently that is no longer acceptable.


Not, that it helps much now. But if this is not a brand new law with backwards effect, you should search a new accountant.

At least if he/she is also a tax consultant, it is his job to keep you informed about changes that you have time to act in advance. Tax surprises aren't necessary if you have a good tax consultant, and the government does not change the rules backwards.

Anyway, take it easy. It is just money.


Direct link Reply with quote
 

Claire Cox
United Kingdom
Local time: 15:50
French to English
+ ...
TOPIC STARTER
Firing not necessary May 8, 2007

Hi Renate,

Actually my accountant had warned me that changes were on the way and that the IR were looking into the extremely complicated situation for barristers, etc. So really, this was just confirmation that the new rules are in force - I suppose I had had half a hint, just kept on hoping that enforcement would be delayed. Oh well, it's only money, as you say....

Claire


Direct link Reply with quote
 
RobinB  Identity Verified
Germany
Local time: 16:50
German to English
Retrospective effect of changes in tax law May 8, 2007

Renate Reinartz wrote: and the government does not change the rules backwards.


Sounds nice in theory, but the practice looks a little bit different. Of course there are general legal principles that laws should not be enacted with retrospective effect, but even the highest courts (in Germany the BGH and the BVG) have allowed exceptions from time to time.

There have been a number of cases here in Germany recently where some provisions of tax bills have come into law with retrospective effect from the beginning of the year (mainly corporate and investment taxation rules), and there's very little chance of this being overturned by the courts.

So there's the "Schein", and there's the "Sein"

Robin


Direct link Reply with quote
 
RobinB  Identity Verified
Germany
Local time: 16:50
German to English
Welcome to accrual accounting May 8, 2007

Hi Claire,

Welcome to the dreary world of accrual accounting. Aren't we lucky to still have the option of cash-based accounting (Ist-Buchhaltung) here in Germany!

The switch-over will certainly cost you quite a lot of effort, and possibly even a higher tax bill in the first year, as you suspect. The problem here is that unlike most businesses, translators don't have too many offsetting supplier invoices (under accrual accounting, you recognise supplier invoices as expenses on the date they're received, not the date they're paid). It should all even out over time, though.

Under accrual accounting rules, you'll be able to charge valuation allowances (bad debt allowances) on a flat-rate and/or specific basis; your accountant will see you right there. And you should also be able to recognise provisions for some future expenses that will be tax-deductible.

I'm surprised that the ITI or IoL hasn't broadcast this news widely.

Robin
PS: I wouldn't have thought that an estimation of work in progress (percentage-of-completion method) would affect translators very much, if at all, unless they do a lot of long-term projects that don't feature progress billings.


Direct link Reply with quote
 

Claire Cox
United Kingdom
Local time: 15:50
French to English
+ ...
TOPIC STARTER
Timing May 8, 2007

Thanks Robin,

I'd already discussed with my accountant the fact that the work in progress would be very difficult to assess, what with charging on target count not source count, and not on an hourly basis. As you say, unless you do long projects, it's not really going to be an issue. And as everything in the world of translations now seems to be wanted yesterday, monthly invoices should cover most cases.

My personal grouse is that I'd juggled my accounts by paying more into my pension to ensure that my son would still get his EMA allowance in the sixth form next year - this has blown it completely out of the water! I suppose it just goes to prove that the UK tax credit system is far too complicated anyway.

Never mind, hopefully it will right itself next year - too late for one son, but maybe in time for my younger one!


Direct link Reply with quote
 
Renate Reinartz  Identity Verified
Germany
Local time: 16:50
English to German
Government loves to change rules in the middle of a game May 8, 2007

RobinB wrote:

Renate Reinartz wrote: and the government does not change the rules backwards.


Sounds nice in theory, but the practice looks a little bit different. Of course there are general legal principles that laws should not be enacted with retrospective effect, but even the highest courts (in Germany the BGH and the BVG) have allowed exceptions from time to time.

There have been a number of cases here in Germany recently where some provisions of tax bills have come into law with retrospective effect from the beginning of the year (mainly corporate and investment taxation rules), and there's very little chance of this being overturned by the courts.

Robin


I know too good, Robin. But this is exactly why I made this exception. May be I haven't expressed this clearly.


Direct link Reply with quote
 
lexical  Identity Verified
Spain
Local time: 16:50
Portuguese to English
Why declare work in progress? May 8, 2007

How is HMRC to know whether you were working on any uninvoiced projects at the year end or not? Translators' workloads go up and down, as we all know, and how is your friendly local tax collector going to know what your situation was unless he sits on your lap?

Why not save yourself a headache and declare zero work in progress, and challenge HMRC to prove otherwise if they disagree?


Direct link Reply with quote
 
Charlie Bavington  Identity Verified
Local time: 15:50
French to English
Nothing about any change in the notes May 8, 2007

I would have thought that if there had been a complusory change to the way the self-emp'd were to calculate income and expenses compared to tax year 2005-06, this would have been flagged up quite prominently either on the self assessment form itself, or in the notes at the very least.

I've just taken a look (they arrived in mid-April) and there is no such notice. I haven't studied every single word, admittedly, but all there is in the notes is (as last year) a comment under expenses that for some business, allowance for WIP may be appropriate.

Even here - http://www.hmrc.gov.uk/helpsheets/ir222.pdf - it doesn't say it's compulsory. It simply says that receipts/cash based would not usually be a proper measure of a business' profits.
I would think that it depends on the nature of each individual's business. If, like me, you basically simply have income from translating and all the usual straightforward expenses (no outsourcing, etc.) paid as they arise, a cash basis ought to be fine.

Personally, unless I can find something concrete (or, e.g. your accountant is kind enough to provide a link) indicating that this change is in fact a) universal and b) compulsory, then I intend to carry on as if I hadn't looked a proz today and I had missed your post entirely

This does not mean for one minute that I doubt that this change applies to your circumstances, merely that I doubt it applies to mine.
Plus which, I already closed my books for 2006-07, and I am seriously disinclined to revisit them


Direct link Reply with quote
 

Claire Cox
United Kingdom
Local time: 15:50
French to English
+ ...
TOPIC STARTER
Interesting! May 8, 2007

Hi Charlie,

Fascinating - I'd looked on the hmrc site as well and couldn't find anything, so I thought I'd phone my local office and find out straight from the horse's mouth. They proceeded to tell me that the "date of payment" was conclusive - which is what I've been doing all along. When I went back to my accountant, she was horrified and said that no, it had all changed and the Revenue often got it wrong..... which leaves us in an interesting position. Anyway, she's going to double-check from her sources, but I shall certainly hold fire for now. Makes you wonder who you can trust to tell the right story though if the professionals can't agree.

If anyone else out there has a professional accountant, perhaps you could check with them and we could at least try to achieve a consensus on this point?

I, for one, would be really grateful as I've no wish to hand over an extra £1000 + this year if I don't have to! And my son would be so grateful to get his EMA after all.

Thanks again,

Claire


Direct link Reply with quote
 
Charlie Bavington  Identity Verified
Local time: 15:50
French to English
box 3.82 (is your accountant partly right?) May 8, 2007

I'm guessing that, as you have an accountant, all your forms go straight to him/her,not to you?

I had a vague memory that, on the form, you indicated the basis you use. I've just looked some more. There isn't, as such, but there IS a box (3.82 !!) for adjustments in the event that you change your basis.

The notes say, exactly as they said last year (!):
"If you are carrying on a trade or profession and have previously used a cash basis to calculate your profits, enter in 3.82 the amount of the adjustment which is charged to tax this year and see the note SEN11"

SEN11 says "if you are carrying on a trade or profession you may in the past have used a cash basis to work out your profits. Aside from certain barristes and advocates, you may no longer do this".
(my bold)
The rest of the note implies this change occured sometime in 1999/2000.

Just goes to show I should have read the notes properly when I started out!
However, it also implies that this is not a new change. Wonder why your accountant thinks it is?

And if you do enter an adjustment in 3.82, is it not basically a signed confession you've been doing it wrong since 2000?


Direct link Reply with quote
 

Pernille Chapman  Identity Verified
United Kingdom
Local time: 15:50
Member (2004)
English to Danish
+ ...
Confusion reigns... May 8, 2007

From what Charlie says, I too am inclined to think that there haven't been any major changes on this. About five years ago (for all that it's worth now), I attended an IR workshop on self-assessment. Here, we were clearly told that all invoiced work within the tax year should be counted as income, whether we'd received it or not. No mention of estimated workload, and I do agree with lexical on this one - how on earth would the tax people be able to check on these things?
Anyway, as I have stubbornly refused to pay an accountant, I don't know anything other than what I can find on HMRC website or what I gain from colleagues who have spoken to their local tax office. As some of the comments here show, very often one hand doesn't know what the other one's doing! Conflicting advice on self-assessment is far too common, and I'm seriously considering finding or applying for another workshop very soon. These are free to attend, and I believe they can be arranged quite easily, unless you want to join one that's already been organised by the HMRC. In any case, Claire, I really don't think you should worry too much. However, you certainly ought to tell your accountant that a very important reason for paying him/her is that you want to know well in advance how much tax you're due...

Whoops - I was busy writing this as Charlie's next post appeared! If there is indeed such a note, this means I, and several of my colleagues, have been doing everything wrong for the last 5 years. Which I very much doubt since I attended the IR workshop in 2002. ..Time to get some direct advice!


[Edited at 2007-05-08 17:30]


Direct link Reply with quote
 

Claire Cox
United Kingdom
Local time: 15:50
French to English
+ ...
TOPIC STARTER
3.82 it is May 8, 2007

I've just spoken to my accountant again and yes, 3.82 is where this should be entered. Apparently this has been under discussion for quite some time and there is a task force looking into this very point - google UITF40 - which applies to professional services. Lots of confusion and the Revenue clerks don't always seem to know what should or should not be applied. However, if they did come to investigate, then this is what should now apply. She did say that it's very unlikely that they would take any action over past years, especially if you were not represented by an accountant as it's hardly clear! In any event, it's not as if we've been evading tax, merely which year it should be paid in. There may be a possibility of spreading the adjustment over three years (she's going to investigate as she had thought that specifically applied to barristers where cases can go on for years) - however, that sounds over-complicated to me - I think I'd rather bite the bullet this year and get back in line!

Definitely time for a workshop or at least some guidance from the ITI?


Direct link Reply with quote
 
Pages in topic:   [1 2] >


To report site rules violations or get help, contact a site moderator:


You can also contact site staff by submitting a support request »

New revenue accounting basis for self-employed people in the UK

Advanced search







Protemos translation business management system
Create your account in minutes, and start working! 3-month trial for agencies, and free for freelancers!

The system lets you keep client/vendor database, with contacts and rates, manage projects and assign jobs to vendors, issue invoices, track payments, store and manage project files, generate business reports on turnover profit per client/manager etc.

More info »
Anycount & Translation Office 3000
Translation Office 3000

Translation Office 3000 is an advanced accounting tool for freelance translators and small agencies. TO3000 easily and seamlessly integrates with the business life of professional freelance translators.

More info »



Forums
  • All of ProZ.com
  • Term search
  • Jobs
  • Forums
  • Multiple search