What if a transaction spans two different years? Follow the money!

Remember the tax year runs from 6 April to the following 5 April. So the 2024/25 tax year runs from 6 April 2024 to 5 April 2025.

Let's look at examples of things that may happen across two tax years:

You invoice a client on 1 March, and they pay you on 1 May. 5/6 April is in the middle of this. You've invoiced in one tax year, and been paid in the other one. Which year should it be in?
You're renting out a property and paying landlord insurance for 12 months starting on 1 January 2024. Do you need to apportion it?
You've bought a £720 phone and are paying £30 a month over two years. Do you claim £720 or £30 each month?
You buy inventory (or stock) of £800 in December and sell it in July. Which year is the cost in?

Follow the money

The good news is that HMRC allow you to take a very simple view and to just look at when the cash comes in or out. Simply find the relevant money in or money out and tag it. Job done!

(HMRC calls this the "cash basis" and it is allowed as long as you're turning over under £150,000 for your business or property activity. The term for adjusting money between years is called the "accruals basis" though HMRC sometimes call it the traditional basis or standard basis.

untied's approach follows this

So long as you're below the threshold, we like to keep it simple and untied only supports the cash basis - we follow the money.

Normally it won't make any difference overall in your tax position - but there may be cases when one method or another would result in less tax.

For most self-employed people the extra admin and likely cost of needing an accountant to look at the options each year will be greater than any benefit of switching. That's why we like this simplification.

Exceptions including cars

If you buy a car that you use in your business (and don't claim mileage), there are options around capital allowances that get more complicated and where are likely to need an adviser.

You may also need an adviser if you have high value purchases which would swamp your personal allowance in a given year (but we also often see the extra admin time and cost not being worthwhile).