To cut it short, I have a client (start up) who are offering to pay $xxxx a day however this income would only materialise under certain conditions in a couple of years time. I am willing to take a gamble here. However I do not fully understand how this would look like in my company books. As this income may not materialise if the start up fails - do I still class this as revenue and hence pay tax on it? Yes I will ask my accountant but it's good to get a second opinion.
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Is accrued income taxed?
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Originally posted by cannon999 View PostTo cut it short, I have a client (start up) who are offering to pay $xxxx a day however this income would only materialise under certain conditions in a couple of years time. I am willing to take a gamble here. However I do not fully understand how this would look like in my company books. As this income may not materialise if the start up fails - do I still class this as revenue and hence pay tax on it? Yes I will ask my accountant but it's good to get a second opinion.Public Service Posting by the BBC - Bloggs Bulls**t Corp.
Officially CUK certified - Thick as f**k. -
Originally posted by Fred Bloggs View Post
Be clear about this. You are willing to deliver work for nothing? That is not a contracting business. It is usually called naivety bordering on stupidity. HTH.Comment
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Speak to your accountant. Under "normal" circumstances, the income would appear on your P&L in the period in which it was invoiced, and taxed as such, and then it would show on your balance sheet as a creditor until paid.
Also, see https://www.investopedia.com/ask/ans...accounting.asp
Good luck in getting anything from the client - i hope you've negotiated a significant increase in day rate to account for the very low chance of actually getting paid anything (based on how many startups actually make it).Last edited by Paralytic; 3 July 2021, 15:22.Comment
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A few things I would want to know before proceeding- Are the people behind the startup working full time on it? Or is it a part time thing?
- How much money have they personally invested in the startup?
- Have they offered any shares, or commission on future sales?
- Have they taken a startup loan?
- Have they had success with a startup in the past?
The work for free now, and we'll pay you later sounds dodgy. Not even sure if it's legal from a tax perspective.Comment
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Originally posted by krytonsheep View PostA few things I would want to know before proceeding- Are the people behind the startup working full time on it? Or is it a part time thing?
- How much money have they personally invested in the startup?
- Have they offered any shares, or commission on future sales?
- Have they taken a startup loan?
- Have they had success with a startup in the past?
The work for free now, and we'll pay you later sounds dodgy. Not even sure if it's legal from a tax perspective.
Just imagine having a new bathroom fitted and then telling the plumber you might pay for it in a few years time if you still like it. That's not how a contracting business works.Public Service Posting by the BBC - Bloggs Bulls**t Corp.
Officially CUK certified - Thick as f**k.Comment
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It depends really on your accounting policy. If you account on a cash basis then yes you get taxed. However, if you use an accruals based accounting policy then it all depends on your contract as to how you recognise that income.Last edited by Abbot; 3 July 2021, 21:11.Comment
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If you’re an incorporated business (as your post suggests) then you can’t use cash accounting. If you’ve done work that has an agreed value then strictly speaking it should be accounted for as accrued income in the financial year the services are performed and yes, accrued income is taxed. If the money never materialises then it may be treated as a bad debt but I’d advise you speak to your accountant about this.Last edited by TheCyclingProgrammer; 4 July 2021, 00:16.Comment
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Originally posted by TheCyclingProgrammer View PostIf you’re an incorporated business (as your post suggests) then you can’t use cash accounting. If you’ve done work that has an agreed value then strictly speaking it should be accounted for as accrued income in the financial year the services are performed and yes, accrued income is taxed. If the money never materialises then it may be treated as a bad debt but I’d advise you speak to your accountant about this.
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You should definitely take some advice from an accountant, as it is highly unusual. You want to ensure that tax is deferred. You run a severe risk of not only not getting paid but also a tax bill.I'm alright JackComment
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