Tax question - difference between amount invoiced and amount received
Thread poster: clairemcn
clairemcn
United Kingdom
Local time: 08:40
Member (2013)
French to English
+ ...
Jan 1, 2015

Hi everyone,

Happy New Year!

I'm spending today starting on my tax return and have a quick question about what I should do if the amount invoiced is different to the amount I actually received in my account. This can either happen because the exchange rate on the day I invoiced is different from the one on the day the money went in (which as we know can be up 2 or even 3 months later) or because of Paypal applying a crazy exchange rate or deducting their fees. I remember hearing that you can put these down as expenses but just wanted to confirm that this is accurate and check where on the form this belongs. For the first time, there's quite a significant difference between the invoiced amount and received amount and I want to make sure I don't pay too much tax. I'd be really grateful if anyone could help!


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Oliver Walter  Identity Verified
United Kingdom
Local time: 08:40
Member (2005)
German to English
+ ...
Received Jan 1, 2015

I am not a specialist and this is my (intelligent, I hope!) guess: you pay income tax on your income, which is the amount you receive. The invoiced amount is what you asked for. which, as you wrote, is not what you received and therefore I would consider that it is not your income.
I'll be interested to see what a more authoritative answer says.

Oliver


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Samantha Payn  Identity Verified
United Kingdom
Local time: 08:40
Member (2008)
Russian to English
+ ...
I'm no expert Jan 1, 2015

But I'd call the calculation "Exchange rate difference" and tot it all up for the year on a spreadsheet. Of course, you have to include where you've received more because the rate change is/was in your favour (if that occurred). If the total is a minus amount I'd just list it in business expenses, if it's a plus, then it's income.
Don't forget that if your turnover is below a certain amount you only need to provide abbreviated figures to the tax man, though you'll have to keep the calculations as to how your arrived at your conclusions for seven (I think it's seven) years.
Hope this helps.


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clairemcn
United Kingdom
Local time: 08:40
Member (2013)
French to English
+ ...
TOPIC STARTER
Where to put down this kind of expense on the form Jan 1, 2015

Thanks for replying!

Samantha Payn wrote:

But I'd call the calculation "Exchange rate difference" and tot it all up for the year on a spreadsheet. Of course, you have to include where you've received more because the rate change is/was in your favour (if that occurred). If the total is a minus amount I'd just list it in business expenses, if it's a plus, then it's income.
Don't forget that if your turnover is below a certain amount you only need to provide abbreviated figures to the tax man, though you'll have to keep the calculations as to how your arrived at your conclusions for seven (I think it's seven) years.
Hope this helps.


I was planning to just add two columns to my spreadsheet (which currently lists the invoice numbers, dates, amount invoiced, the equivalent amount in sterling using the exchange rate on the day of invoice) which will show me whether the amount I received was more or less than the amount invoiced and by how much, add together the plus amounts and the minus amounts and subtract one from the other.

Would I then just add this to all the other expenses and put it as one figure?


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clairemcn
United Kingdom
Local time: 08:40
Member (2013)
French to English
+ ...
TOPIC STARTER
Big differences in amounts Jan 1, 2015

Oliver Walter wrote:

I am not a specialist and this is my (intelligent, I hope!) guess: you pay income tax on your income, which is the amount you receive. The invoiced amount is what you asked for. which, as you wrote, is not what you received and therefore I would consider that it is not your income.
I'll be interested to see what a more authoritative answer says.

Oliver


That's what I thought, and something I read here a while back (although I can't remember in which thread) seems to confirm that. Last year, I didn't think about this, but hadn't earned much from my translation work anyway. This year I've earned more and have received a lot of my payments through Paypal, meaning in many cases that there is a significant difference between invoiced amount and received amount.


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Olga Koepping  Identity Verified
United Kingdom
Local time: 08:40
Member (2008)
German to English
+ ...
I think you submit the amount you actually received Jan 2, 2015

As someone said above, you will be paying tax on what you actually received, so that is what you should be submitting. The proof is there for the tax people to see in your bank account and paypal account if required, and invoices are the proof that your income came from legitimate sources, rather than proof of income. If you submit the total of your invoice amounts and then deduct expenses (exchange rates etc), then you will end up paying more tax, I would have thought.

I am of course no expert either, but that's how my sister who is self-employed does it, and I am about to submit my return along those lines too. Btw also have a look at cash basis accounting, so you're paying tax on money that you actually received up to April, not on all the invoices issued that were paid after 5 April). Small businesses with low turnover can do that.


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Mike Hunter
United Kingdom
Local time: 08:40
Member
English to Flemish
+ ...
claim all permitted expenses including PayPal fees and exchange rate costs Jan 2, 2015

Hi Claire,

like everyone else, I don't claim to be an expert. Exchange rate changes and PayPal fees are a pain. I think the advice of others is correct, its actual inome received that HMRC are interested in. You could ring the HMRC advice line. I haven't used it for a long time, and advice quality can be variable, but if you record their response, you have a record of what they say. Depending on turnover, it may be worth getting someone to do your accounts, as a sole trader it shouldn't be massively expensive, and they can ensure your are claiming all permitted expenses. e.g. do you claim office costs if working from home?
Hope this helps.

Regards

Mike


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Sonia Hill
United Kingdom
Local time: 08:40
Italian to English
Amount received Jan 3, 2015

My accountant has always advised me to record the amount received in GBP and to keep a record of any expenses such as Paypal fees (although I try to avoid Paypal wherever possible as the exchange rate is terrible).

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Samantha Payn  Identity Verified
United Kingdom
Local time: 08:40
Member (2008)
Russian to English
+ ...
I'm no expert ... Jan 4, 2015

clairemcn wrote:

Thanks for replying!

Samantha Payn wrote:

....


I was planning to just add two columns to my spreadsheet (which currently lists the invoice numbers, dates, amount invoiced, the equivalent amount in sterling using the exchange rate on the day of invoice) which will show me whether the amount I received was more or less than the amount invoiced and by how much, add together the plus amounts and the minus amounts and subtract one from the other.

Would I then just add this to all the other expenses and put it as one figure?


Yes, I think so.


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Hannah D  Identity Verified
United Kingdom
Local time: 08:40
French to English
+ ...
More questions...help needed! Jan 6, 2015

Thought I'd add to this thread with more tax-related questions! Sorry if some of them are really obvious...

1) I'm confused about the difference between the ''allowable expenses'' and ''capital allowance and balancing charges'' sections. So allowable expenses means office space rent, memberships, etc. But where should I put Trados? Does that go under allowable expenses or capital allowance?

2) All of my clients are based in France and pay me into my French bank account, although I currently live in the UK. Obviously I will convert and declare all payments made to my French account - but this doesn't count as 'foreign income', does it? Considering I am doing all the work from the UK?


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Thomas Pfann  Identity Verified
United Kingdom
Local time: 08:40
Member (2006)
English to German
+ ...
Link to HMRC info and webinars Jan 6, 2015

Hannah D wrote:

Thought I'd add to this thread with more tax-related questions! Sorry if some of them are really obvious...

1) I'm confused about the difference between the ''allowable expenses'' and ''capital allowance and balancing charges'' sections. So allowable expenses means office space rent, memberships, etc. But where should I put Trados? Does that go under allowable expenses or capital allowance?

2) All of my clients are based in France and pay me into my French bank account, although I currently live in the UK. Obviously I will convert and declare all payments made to my French account - but this doesn't count as 'foreign income', does it? Considering I am doing all the work from the UK?



This HMRC helpsheet explains what "allowable expenses" and "capital allowance and balancing charges" are:
https://www.gov.uk/government/publications/capital-allowances-and-balancing-charges-hs252-self-assessment-helpsheet

I actually just today attended a pretty good HMRC webinar about "Business expenses for the self-employed". They are running the same webinar again on the 12th, 20th and 26th January. The following link gives a list of all upcoming webinars run by HMRC - they are free, last an hour and you have the opportunity to ask questions - just sign up and listen in on the day. I can truly recommend them!

https://www.gov.uk/government/news/webinars-emails-and-videos-if-youre-self-employed

And about your 2nd point: It's definitely not "foreign income". I can't explain why - need to refresh what I was told about what foreign income actually was - but I am sure in our case income received from abroad is not foreign income.


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magdadh
United Kingdom
Local time: 08:40
Polish to English
+ ...
Cash basis tax calculation.... Jan 23, 2015

This has been introduced from the last tax year, and I think is extremely suitable for any online earnings, especially small and fairly casual amounts where invoicing can be unclear or nonexistent even (I don't just mean translation, but for example copywriting for certain sites etc).

https://www.gov.uk/simpler-income-tax-cash-basis/overview


...which means that you count the actual money received, when received, rather than what/when was invoiced.


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