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|Original Message Added : 24 Mar 2012|
|Reply : 24 Mar 2012|
the payment you have received isn't income. consider as more like a business debt. this is because its an advance payment for work not yet completed. even if you have already bought the materials for the job, this isn't income but simply a part payment towards a future bill, you wont know if you have made a profit on the job until its complete (you might have an estimate in mind of what you should make but don't assume that you need to allow 20% off all money into the business for tax, although this would leave you with a decent cash reserve, you might end up over stretching yourself if you overestimate your liabilities)
you said that you have earned over the personal allowance since november, did you have nil income before this? you need to allow for all income since 6-4-2011 up to 5-4-2012 not just that portion since self employed.
for example if you had worked for a company up to november and earned £15000, you have already used up your allowance on that PAYE earnings sum.
the key thing with self assessment and taxation with the self employed is that you pay tax on the PROFIT and not the turnover (although this year's budget seems to imply that might change for businesses below the VAT threshold).
your taxable income should be business turnover (ie what you have invoiced) minus expenses such as materials, insurances, fuel, tools/equipment, advertising etc. there are many allowances that go unclaimed by small businesses especially those working from home.
i would suggest you spend a little money on some simple accounting software (quickbooks is very user friendly and costs £99 plus vat) and many accountants can use the data file to draw up accounts for you.
i would also consider paying for a local consultation with an accountant to give you some personal advice on how to structure your business so that you can make it as tax efficient as possible but also to point out what records to keep so that you can legitimately reduce your tax liability.
i assume that you have already registered with HMRC for national insurance purposes? this should be done within 3 months of commencing work.
there are many simple steps you can take to get things in order but i would counsel you against posting too much personal data on a public forum like this but feel free to make direct contact if you wish.
|Reply : 24 Mar 2012|
|Reply : 25 Mar 2012 - (Edited : 26 Mar 2012)|
A large amount of advice has been provided above re:bookeeping,VAT,Registeing as self-employed and computerised accounting packages.
Each of your projects can be set up in quickbooks and the costs incurred allocated to individual projects thus aiding budget versus actual comparisons and cost control.The total costs of all projects is work in progress and payments received in advance are deducted from work in progress and the net work in progress included on your balance sheet.When the project is complete the costs incurred on the project are transferred to profit and loss account.Dont forget you may have costs for which you have not yet received supplier invoices in which case you should set up creditors.
At your year end you may have unfinished projects and the sales value of work done to date on these projects should be included in your profit and loss account.A debtor may have to be set up in respect of work done on projects but not yet invoiced.You may also prepare monthly or quarterly accounts in which case this procedure should be carried out at each period end.
In conclusion you are taxed on both profits on complete projects and profit on incomplete projects based on the value of work done to date.For large projects you could use a quantity surveyor to value work done to date.This is irrespctive of payments in and out.
It may be wise to agree written contracts for each project which incorporate stage payments (3 or 4).
It is important to keep under review whether you need to register for VAT in view of the penalties for late registration.
Chris Whiteley 07790-816592 Info@Clientspal.com
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