Decrease the Profit

[lecyclist]

What do you mean?

FTFY

Ask your accountant about Cash Accounting. In other words, revenues and expenses are recorded when cash is received and paid, respectively (and not necessarily when the work was carried out). If you are planning to take a year off after a spectacular year of contracting, it's a way to offset some sales to the next year to take advantage of tax allowances.

[ladymuck]

FTFY

Ask your accountant about Cash Accounting. In other words, revenues and expenses are recorded when cash is received and paid, respectively (and not necessarily when the work was carried out). If you are planning to take a year off after a spectacular year of contracting, it's a way to offset some sales to the next year to take advantage of tax allowances.

A lot of people forget about this as most default to accrual accounting.

To make it even simpler, cash accounting is based on when transactions hit your bank account. Nothing is recorded until that point.

[Lance]

FTFY

Ask your accountant about Cash Accounting. In other words, revenues and expenses are recorded when cash is received and paid, respectively (and not necessarily when the work was carried out). If you are planning to take a year off after a spectacular year of contracting, it's a way to offset some sales to the next year to take advantage of tax allowances.

I am familiar with cash accounting. Hadn't really thought about that use case to be honest.
But switching between cash and invoice accounting is more than just deciding to fudge some figures.
For a start you can't change for the purposes of an invoice already raised. You need to plan in advance. Which is OK if that's what you want.

But. If you save £2k in tax year 1, you still pay it in tax year 2.
If you suffer a loss in year 2 then you can claim tax back from year 1.
So all in all it's still going to be cost neutral.