Reply to: Do I log payments against invoice date or date received?

[ittony]

An interesting discussion. I invoice on the first working day of the month for work completed during the previous calendar month, which means that there is wip at the year end. I've never stated that in the accounts though. Oops.

Cheers Gonzo, yes interesting. Okay, here's another one, for most of my first accounting year I wasn't drawing a salary, mainly because I hadn't worked out how to run a payroll yet, when I did work it out I started paying at a higher rate that would take me up to 5225 by the end of my personal tax year. If I'd been paying that out evenly from the beginning, more of it would have come out during my first company year, so do I need to account for that liability in my distributable reserves calculations?

[Gonzo]

Ha! I can imagine.

So, as long as am sure my clients are good for the money, there's no problem in paying a dividend which leaves my business bank account holding less than what will be needed to pay CT later down the line. As long as I do leave enough to cover the CT liability incurred on payments I have actually received?

If you are sure that the clients (and any intermediary) are good for the money, then there should not be a problem paying a dividend based on what you have invoiced but not yet been paid.

As a backup, I would also make sure that you have a plan to be able to get the CT money back into the business account should the invoices not be paid. You don't want to be in a position where you can't pay the CT.

But I don't think that you will get away with paying dividends out when there is not enough profit in the company (or retained profits) to cover them.

An interesting discussion. I invoice on the first working day of the month for work completed during the previous calendar month, which means that there is wip at the year end. I've never stated that in the accounts though. Oops.

[ittony]

Yes. since the wip has value this increases the profit and consequently the shareholders funds and therefore distributable reserves.

But... you do of course need the reasonable expectation that the wip will get paid for.

I suspect it is not entirely unheard of for people to discover they have a certain amount of wip they had forgotten to tell the accountants about when they discover the net shareholders funds have inadvertently gone negative.

Ha! I can imagine.

So, as long as am sure my clients are good for the money, there's no problem in paying a dividend which leaves my business bank account holding less than what will be needed to pay CT later down the line. As long as I do leave enough to cover the CT liability incurred on payments I have actually received?

[ASB]

So does that mean I can pay dividends on the same basis, i.e. based on the work I did in my recently finished year even if I haven't invoiced for all of it yet or received all the payments?

Yes. since the wip has value this increases the profit and consequently the shareholders funds and therefore distributable reserves.

But... you do of course need the reasonable expectation that the wip will get paid for.

I suspect it is not entirely unheard of for people to discover they have a certain amount of wip they had forgotten to tell the accountants about when they discover the net shareholders funds have inadvertently gone negative.

[ittony]

Yes, recorded as the opposite of an accrual afaik but I can't remember what its called.

So does that mean I can pay dividends on the same basis, i.e. based on the work I did in my recently finished year even if I haven't invoiced for all of it yet or received all the payments?

[Sockpuppet]

Does that mean if the week straddles the year end (as is going to happen to me this month), the 07/08 accounts ought to include the four days I'll have worked but not invoiced for?

That seems unnecessarily complex.

Yes, recorded as the opposite of an accrual afaik but I can't remember what its called.

[THEPUMA]

Does that mean if the week straddles the year end (as is going to happen to me this month), the 07/08 accounts ought to include the four days I'll have worked but not invoiced for?

That seems unnecessarily complex.

Strictly speaking yes. It is aimed at bigger businesses such as lawyers and accountants who generally do a lot of their work some time before they bill for it.

[ASB]

Does that mean if the week straddles the year end (as is going to happen to me this month), the 07/08 accounts ought to include the four days I'll have worked but not invoiced for?

That seems unnecessarily complex.

Yes. Its a current asset of work in process (granted some folk - possibly even most - don't actually bother).

FWIW for us this used to be a right royal pita. We would often have about 40k uninvoiced plus 50k on the sales ledger. This would therefore increase the profit by 90k and this was due for CT. Obviously I would much rather this was in the following years accounts but sadly that is not allowed.

[ASB]

For VAT purposes you can use the date paid. For accounts purposes, it is neither. it is based upon the work actually performed prior to the balance sheet date so you have to account for work performed but uninvoiced at the balance sheet date.

I seem to recall that a couple of years ago there was a proposal that accounts could be prepared on cash received basis rather than bills delivered. [I think the suggestion was that where an enterprise could prepare VAT accounts on cash received basis this would also enable accounting for CT etc to be prepared on the same basis]. Am I right in assuming this is now as dead as a proverbial dodo ?

[VectraMan]

For VAT purposes you can use the date paid. For accounts purposes, it is neither. it is based upon the work actually performed prior to the balance sheet date so you have to account for work performed but uninvoiced at the balance sheet date.

Does that mean if the week straddles the year end (as is going to happen to me this month), the 07/08 accounts ought to include the four days I'll have worked but not invoiced for?

That seems unnecessarily complex.

[techno]

IANAA.....

It is important depending on what VAT system you are running.

I do the Cash Accounting VAT so the VAT is not due until I am paid, whereas the standard Accrual VAT means the VAT is due based on the date of the invoice.

therefore I log the date the payment turns up in the bank.

[MrRobin]

My understanding was that you should use the date that the invoice was raised - not printed, posted, paid or anything else. Within that invoice you can have several items with all manner of different dates up to and including the invoice date.

Again... IANAA.

[THEPUMA]

For VAT purposes you can use the date paid. For accounts purposes, it is neither. it is based upon the work actually performed prior to the balance sheet date so you have to account for work performed but uninvoiced at the balance sheet date.

[Jason]

I record the invoice itelf on the date issued and the payment on date it turns up in my account.

[TheFaQQer]

Either the date that the money was received, or the date that the invoice was raised.

As long as you are consistent, it's not important - I use the date that the momey was received, as that helps cash flow.

IANAA.