What do I pay Tax on?

[jedimistress]

I take three payments. A deposit, payment half way through the job, then a final payment upon completion. I'd like to know....what amount do I pay my personal tax on? Is it the whole amount of the invoice even though I may have only taken a deposit or the second payment? Is it once I have received all the payments, what I anticipate or what I have received to date? There are some jobs I have only been part paid for at the end of this accounting period so not sure how to treat them. Same question again for VAT please. Thanks in advance.

[jedimistress]

I had difficulty wording that question. I am aware I pay tax and VAT on all the income, (I'm VAT registered) it's just at what point. Once money received or anticipated money? Thanks again.

[buildersmate]

I guess you choose not to employ an accountant to help you. You pay tax on the profits in the accounting year of your business. Those profits are calculated on the invoice dates - same with VAT. The VAT tax point is effectively the date of the invoice. So this is prior to you actually getting the money. Any bad debts that subsequently accrue can be written off against profits.

[jedimistress]

Thanks very much, yes I choose not to have an accountant as I do not need one. It's like paying a doctor to change a plaster. They wouldn't do the work anyway, they pass it onto their bookeeper or taxation department who earn a lot less but will still charge as if they had done it.

Thanks a lot for your reply, just what I needed to know.

[Loosehead]

Forget VAT, that's completely separate from your personal income. Essentially you pay tax based on the net income for the year in question, pay some as you go by all means but the final amount will depend on the final income for the year. You do not have to pay by the job, or account by the job. You have 10 Months after the end of the tax year to fill in a tax return and pay any outstanding tax. It's pointless trying to attempt the tax calculation until after the end of the tax year concerned. Do an estimate and pay some on acount by all means and then adjust accordingly when you put in your final return.