Self employed unpaid invoices

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  • #38650
    peter andre
    Participant

    Hi

    Child minder who is owed money from a client for unpaid invoices, she is going through a solicitor to recover this money.

    Any idea if this money is taken into account as income?

    Thanks

    #109120
    Kay_Tade
    Participant

    Not until she actually receives it.

    #116922
    rds01
    Participant

    What happens when they do receive the money, say several months later. Do we treat the money as being received for the period it covers (retrospectively creating an overpayment) or is it capital? Thanks.

    #116992
    Anonymous
    Guest

    DEpends on which accounting method the claimant uses. There are two main options:

    – paper method, where income is counted as received when the client is invoiced. It appears as income in the accounting year when the invoice was issued, even if the client pays the bill in a subsequent year

    – cash method, which counts the income as received when the bill is paid, even if that is not the same as the accounting year in which the bill was issued

    If using the paper method, a debt that subsequently proves uncollectable and has to be written off as a bad debt can be claimed as a business expense in order to offset the income that was accounted for but never actually received – this is necessary if the income was included in an earlier year’s accounts.

    So you need to ask the claimant whether or not the income has already been recorded as business income in a complete set of accounts. If it has not, that’s OK as long as the claimnant does count it as income if and when it is eventually received. If the claimant has already recorded it as income, she is entitled to deduct it as an expense if the legal efforts come to nothing and the debt is written off.

    #116997
    Kay_Tade
    Participant

    Guess it depends on what happens, paper/cash method as Peter described, it will not be capital when received and/or recorded as received and will have to be treated as income accordingly.

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