Sole trader evidence. Advice would be really appreciated.

[pce950]

Hi

I'm a sole trader and hopefully will have the income threshold of £18600 by the end of this current tax year (I. e. by April 5th 2016 next year). In my line of work
I send clients an invoice and I usually get paid one to two weeks later. I know that as long as the date of the invoice is within April 5 2016 hmrc will accept this as income earned in this current tax year even if I get the physical funds into my bank account a week or two later past the end of the tax year of April 5th (as long as the invoice was dated and sent before this).

Now my worry is as bank statements of 12 months are are required as evidence (personal bank statements for sole traders) if I was to do work on say March the 25th 2016 and invoice my client on March the 25th but the actual funds for this invoice go into my bank account on say April 10th 2016 this will obviously show on my bank account as being past the 12 months (even though it's a few days over) would they disregard this even though hmrc would accept this as my income earnt for this tax year as the invoice was dated
March the 25th? I could technically be a little bit below £18600 as per the bank statements but as per my completed tax return I would have earnt £18600 as my invoice and work carried out was within the time period as this is accepted by hmrc.

Would really appreciate your advice on this.

Thanks

[pce950]

Anyone?

[Wanderer]

Don't forget the income figure the IKVI will use the net profit, not the total income.

[Casa]

Also, in addition to Wanderer's comment, my understanding is that the case worker will only consider income received, not unpaid invoices. If you look at this logically, if unpaid invoices were to be included in the calculation, a sole trader could easily issue invoices to bump up income and then later issue credit notes once the application was approved. That's beside the more unscrupulous issuing false invoices.

[pce950]

Don't forget the income figure the IKVI will use the net profit, not the total income.

Can you please confirm this as I've been under the impression that it is gross income not net? It clearly says in the requirements that it is gross income of the self employed, nowhere does it mention net. I thought it was gross annual income before deducting expenses. That is what the word gross means ans why they mention gross I. E before expenses.

[pce950]

Also, in addition to Wanderer's comment, my understanding is that the case worker will only consider income received, not unpaid invoices. If you look at this logically, if unpaid invoices were to be included in the calculation, a sole trader could easily issue invoices to bump up income and then later issue credit notes once the application was approved. That's beside the more unscrupulous issuing false invoices.

But hmrc allows unpaid invoices to be used in calculating your tax. As long as the date of the invoice and work carried out was before the April 5th deadline. So your tax return can show (correctly) £18600 but your bank statements may not. So hmrc accepts that you have officially earnt £18600 but your bank statements may not as you are still waiting for invoices to be paid physically in your bank. That is where the confusion lies.

[Casa]

Don't forget the income figure the IKVI will use the net profit, not the total income.

Can you please confirm this as I've been under the impression that it is gross income not net? It clearly says in the requirements that it is gross income of the self employed, nowhere does it mention net. I thought it was gross annual income before deducting expenses. That is what the word gross means ans why they mention gross I. E before expenses.

As I posted in the other member's thread:
(i) the gross taxable profits from their share of the business; and
(ii) allowances or deductable expenses which are not taxed will not be counted
towards income.

i.e By 'Gross' the Home Office mean the amount from which HMRC calculate tax.

See the leading paragraph on page 23
https://www.gov.uk/government/uploads/s ... _FM_SE.pdf

[Casa]

Also, in addition to Wanderer's comment, my understanding is that the case worker will only consider income received, not unpaid invoices. If you look at this logically, if unpaid invoices were to be included in the calculation, a sole trader could easily issue invoices to bump up income and then later issue credit notes once the application was approved. That's beside the more unscrupulous issuing false invoices.

But hmrc allows unpaid invoices to be used in calculating your tax. As long as the date of the invoice and work carried out was before the April 5th deadline. So your tax return can show (correctly) £18600 but your bank statements may not. So hmrc accepts that you have officially earnt £18600 but your bank statements may not as you are still waiting for invoices to be paid physically in your bank. That is where the confusion lies.

I'm open to other views, but I believe the unpaid invoices won't be accepted as if the invoice remains unpaid the actual income will be less than claimed. An accountant will be able to explain the tax regulations regarding HMRC and invoices raised within the registered tax year.

The bank account must be reconciled with income to meet the £18,600 income level.

[pce950]

My apologies. I've re read the paragraph and it it is indeed gross income after tax. I find this absolutely RIDICILOUS as how on earth are the employed allowed to use their annual gross salary without tax deductions whereas the sole traders have to show the figure after all deductions and personal allowance. Beyond ridiculous. Well that's made things extremely hard now.

[Casa]

My apologies. I've re read the paragraph and it it is indeed gross income after tax. I find this absolutely RIDICILOUS as how on earth are the employed allowed to use their annual gross salary without tax deductions whereas the sole traders have to show the figure after all deductions and personal allowance. Beyond ridiculous. Well that's made things extremely hard now.

I've replied in the other member's thread.

[Casa]

Perhaps it would be easier to understand like this:

Person A - employed. Earning £18,600 before tax. Takes home earnings less tax and has all of this income to spend on rent, food, bills etc.

Person B - self-employed. Income £18,600 before tax but from the income has to pay for example for business premises, materials, fuel etc.
Expenses may amount to (for example) £4,600.
This means they may only have £14,000 left to spend on personal rent, food, bills etc.
Tax is only deducted from the £14,000, as it would be if it was income from employed (spendable) earnings.

[noajthan]

Perhaps it would be easier to understand like this:

Person A - employed. Earning £18,600 before tax. Takes home earnings less tax and has all of this income to spend on rent, food, bills etc.

Person B - self-employed. Income £18,600 before tax but from the income has to pay for example for business premises, materials, fuel etc.
Expenses may amount to (for example) £4,600.
This means they may only have £14,000 left to spend on personal rent, food, bills etc.
Tax is only deducted from the £14,000, as it would be if it was income from employed (spendable) earnings.

+1

Employees don't 'enjoy' (many) tax breaks on expenses.

[Wanderer]

My apologies. I've re read the paragraph and it it is indeed gross income after tax. I find this absolutely RIDICILOUS as how on earth are the employed allowed to use their annual gross salary without tax deductions whereas the sole traders have to show the figure after all deductions and personal allowance. Beyond ridiculous. Well that's made things extremely hard now.

What's ridiculous about it?

Take the example of say a builder, gross income £20,000 but has business costs (materials, plant hire etc) of £12,000.

Net is £8,000, nowhere near enough to pay the visa fees almost, let alone import a spouse.

On the other hand you could have a freelance writer earning £18,900, only business expenses being a pens and paper, £200 a year, £18,700 net profit, no problems there.

It's not after tax anyway - it's after EXPENSES.