Freelancers' Questions: Any tax risk to being paid twice for one job?
Freelancer’s Question: I’m a freelancer who’s been paid twice for one job on the same invoice, once at the end of April and once at the start of this month, meaning that I have been overpaid by more than £2,000.
I notified the client company of the error and they asked me to transfer the money back. This is a company that I like and I currently have invoices with them that are due for payment next month, to a value of more than the overpayment.
As a new freelancer, I'm concerned about the implications that returning the cash could have on my tax situation. What adverse impact could there be? If it's likely to be a problem, would it be reasonable to ask the company to offset this payment against future payments?
Expert’s Answer: Please do not be at all concerned that you have been twice paid for the same piece of work. From an accounting point of view, the £2,000 repayment will simply be offset against the £4,000 receipt and appear in your books as a net £2,000 receipt against an invoice for £2,000.
There are absolutely no tax implications, so you do not need to worry about a repayment of the second receipt. Your accountant should sort this out for you when they prepare your accounts or even sooner if they help you prepare your VAT return.
Assuming that you are VAT-registered (Flat Rate Scheme, I hope), the only thing you need to make sure of is not to declare turnover based purely on cash receipts, especially if the receipts (including the overpayment) fall into one VAT period and the repayment in another. The declaration should be made on net receipts after the set off of the overpayment.
As for asking to set the overpayment against future liabilities, I cannot see any reason why this suggestion should not be acceptable to them - other than their accounts department moaning that it might cause them extra work to make the necessary adjustments internally.
One last comment – full marks for being so honest! Some embittered and hardened freelance workers may well have kept quiet at discovering that they’ve been overpaid. But honesty does pay in the end, so hopefully you will have earned a few brownie points over this episode!
The expert was Barry Roback FCA, director of the Anderson Group, an accountancy solutions provider.
18th June 2015