Taxed in 07-08 for work completed in 06-07

[Eamon]

Hi, I've been away for about 6 months and now that I am back it's time to sort my tax out.

About 6 months ago I finished my last contract, which ran one week into this (07-08) fiscal year. I operated this through a MSC which changed over to an umbrella company as of 6th April 2007 due to the new legislation regarding MSCs.

Come time to do my tax return, I have put all my payslips and dividend receipts details into a spreadsheet and found that the numbers do not match up with what said MSC had provided on my P60 for 06-07. Further investigation revealed that they had not included my income and tax for the final two weeks of fiscal yr 06-07. These two weeks were paid on the 12th and 13th April however all worked related was completed before 5th April 2007.

Am I correct in believing that this should be included as earnings and tax for fiscal year 06-07 not 07-08?

I alerted them to this and the response I got was "Anything you are paid for after the 06/04/2007 will be for the tax year of 2007 to 2008 and will show on your p60 that you receive next year."

Surely it should not be to my detriment that my boss took a few days to approve my time-sheet and the agencies then took a couple of days between them to finally pay me? The reason this is such a sticking issue is that because of the short amount of time I worked last year, I have some head room below the high tax threshold so would rather have this income fill that space as I expect to go above it this fiscal year as it is.

Basically it all boils down to whether income should be taxed for when it is earned (as I believe) or when it is paid? (as they seem to believe)

Regards,
Eamon

[NotAllThere]

Income is taxed according to the period in which it is paid.

[cailin maith]

Accruals basis - if you accrued fees in the 06/07 year they are taxed in 06/07 regardless of when the money is paid to you or

Receipts basis - fees taxed as and when you receive them....

Depends on which method is used by accountants.

[Hex]

Accruals basis - if you accrued fees in the 06/07 year they are taxed in 06/07 regardless of when the money is paid to you or

Receipts basis - fees taxed as and when you receive them....

Depends on which method is used by accountants.

But the amount paid to him was paid by an Umbrella after 6th April 2007 and it was PAYE. So he was effectively an employee of the Umbrella and his personal tax liability is for the tax year 2007/2008. He cannot choose to have his PAYE salary paid on an Accruals or Receipts basis.

[cailin maith]

Accruals basis - if you accrued fees in the 06/07 year they are taxed in 06/07 regardless of when the money is paid to you or

Receipts basis - fees taxed as and when you receive them....

Depends on which method is used by accountants.

But the amount paid to him was paid by an Umbrella after 6th April 2007 and it was PAYE. So he was effectively an employee of the Umbrella and his personal tax liability is for the tax year 2007/2008. He cannot choose to have his PAYE salary paid on an Accruals or Receipts basis.

I know that but surely the original payers would have cleared the outstanding invoices before changing every one to PAYE... or is that just me being niave??

[Hex]

I'm guessing, because the facts aren't clear, but my guess is that the MSC/Umbrella received payment of the invoice after 6 April 2007 and that they are then forced by HMRC anti-MSC regulations to pay everything out as PAYE from 6 April.

[Eamon]

Hi All, thanks for the responses. Just to add a little to clear things up on what has been said so far.

Yes the MSC/Umbrella would have received the money after April 6th from the agency though the time-sheets were for work before April 5th, just took my boss about a week to sign off on the time-sheet. And this money was then paid PAYE to me.

If it has to be the case due to the new MSC regulations that this is/was paid PAYE I can live with that, what I really wanted though was this money to be accounted for in the 2006-2007 fiscal year. Is this is not an option?

Currently it means there is an extra couple of thousand pounds on this year's earnings for me which decreases the amount of dividends I can take before paying an additional 25% tax on them. It's going to effectively cost me > £500 as I see it.

Eamon

[DaveB]

As a PAYE employee of the MSC/Brolly you get paid when you get paid. If you were paid in the 07/08 tax year then that is when it has to be accounted for in your personal tax returns.

If you were running a ltd and accounting on accruals then your ltd could count it as 06/07 for CT purposes, but if your ltd then pays out salary and divi's in 07/08 thats when you have to account for it personally.

Whatever the reason it's the dates the payment is made to you that counts for your personal tax libilities.