How do I handle income earned just before the tax year end?

Understanding why “just before year end” income feels tricky

Income earned right at the end of a tax year often creates confusion because it sits on the boundary between two reporting periods. You may have done the work in late March or late December, shipped a product on the final day of the year, or invoiced a client with only a few hours to spare. Then the money arrives in your bank account after midnight, or the payslip is dated in the new year even though the hours were worked in the old one. The natural question is: which tax year does it belong in?

The short answer is that it depends on your status (employee, self-employed, company director, landlord, investor), your accounting method (cash basis vs accruals), the legal timing rules for different income types, and sometimes the details of your contract or payroll process. Handling this well is less about trying to “pick” a year and more about applying the correct rule consistently, keeping evidence, and planning ahead so you’re not surprised by tax bills or cash flow swings.

This article explains the typical rules and practical steps for handling income earned just before the tax year end. It focuses on common scenarios, the logic behind the treatment, and the checks you can make so your reporting matches reality and stays defensible if you’re ever asked to explain it.

Start by identifying your income category

Before you decide anything, classify the income. Different categories have different timing rules. The most common categories are:

Employment income: wages, salary, bonuses, commissions, tips, benefits.

Self-employment or freelance income: invoices to clients, platform payments, contract fees.

Business income through a company: director salary via payroll, dividends, loan repayments, expenses reimbursed.

Property income: rent, service charges, Airbnb/short-let income.

Investment income: interest, dividends, distributions.

One-off income: settlements, grants, royalties, prize income (where taxable).

Once you know the category, you can focus on the relevant timing rule rather than relying on a general “when I earned it” instinct. The instinct can be correct in some situations and wrong in others.

Cash basis versus accruals: the decision that changes the answer

If you’re self-employed (or running a small unincorporated business), the biggest determinant of timing is often whether you use cash basis or accruals (traditional) accounting.

Cash basis in plain language

Under cash basis, you generally record income when you actually receive it and record expenses when you actually pay them. If you did work on the final day of the tax year but the client pays you in the new tax year, that income typically lands in the new tax year under cash basis. The appeal is simplicity: your accounts follow your bank activity more closely.

However, “receive” can include more than physically seeing the money in your bank. For example, if a platform credits your account, or a client pays into a payment processor account you control, you may be treated as having received the money even if you withdraw it later. The key idea is: when did it become available to you, without substantial restriction?

Accruals in plain language

Under accruals, you record income when it is earned (and you have a right to it) rather than when cash hits your bank. This can put late-year work into the old tax year even if payment comes later. Accruals aims to match income and expenses to the period they relate to, which can produce a more accurate picture of performance.

With accruals, the year-end boundary becomes more about evidence: invoices raised, work completed, delivery dates, contractual milestones, and whether there’s a legal right to payment at year end.

How to choose the right method

In many places, eligibility rules and thresholds affect whether you can use cash basis, and once you choose a method you should apply it consistently. Switching methods can be allowed, but it usually involves adjustments so income isn’t omitted or counted twice. If you’re unsure which method you’re using, look at prior returns/accounts: if your turnover is basically what you received in the year rather than what you invoiced for that year, you’re likely on cash basis.

If your main worry is “I did the work in the old year but got paid in the new year,” cash basis will usually push the income later, while accruals may pull it earlier. But you should not pick a method purely to “move” income around without considering the overall impact on accuracy, consistency, and compliance.

Employment income: payslips, payroll dates, and why “earned” may not matter

If you’re an employee, the timing of income is typically driven by payroll and when you are treated as having been paid. In many payroll systems, there is a pay date: the date wages are considered paid, even if the hours relate to an earlier period.

Here are common end-of-year situations for employees:

1) March/April (or December/January) pay boundary: You may have worked shifts right before year end but your pay date falls after year end. In most cases, that income belongs to the tax year in which the pay date falls, not necessarily the year you worked the shifts.

2) Bonuses announced at year end: If a bonus is declared just before year end but paid after year end, it will usually be taxed in the year it is paid, unless there’s an unusual arrangement that treats it as constructively received earlier.

3) Back pay or corrections: If your employer processes a correction after year end, that often affects the later year’s payroll reporting, even if it relates to prior periods. Sometimes employers issue amended payroll filings; sometimes they don’t. Your job is to align with official payroll documentation and confirm discrepancies with payroll if needed.

4) Benefits in kind: Some benefits have special reporting cycles and may not map neatly to “date received.” For example, a benefit may be calculated annually and reported after the year end in a specific form or payroll process. The key is to follow the official reporting document rather than guessing.

Practical tip: For employees, start with your official year-end statement (such as a tax summary or annual payroll statement). If your bank deposit date differs slightly from the official pay date due to weekends or bank processing, the official pay date often wins. If something looks wrong, ask payroll for clarification rather than trying to “fix” it yourself on a return.

Self-employed and freelance income: invoices, milestones, and partial completion

For freelancers, contractors, and sole traders, year-end work is a classic issue. You might deliver a project on the last day, send the invoice immediately, and receive payment later. Or you might be midway through work and plan to invoice after the year end. How you handle this depends heavily on whether you use cash basis or accruals.

If you use cash basis

Typically you record the income when received. If you invoice on 30 March and get paid on 10 April, it generally falls in the new tax year. If the client pays you on 31 March but you don’t notice until 1 April, it usually still counts as received on 31 March if it cleared and became available to you then.

Potential pitfalls include payment processors and platforms. If a platform credits your balance on 31 March but you withdraw on 3 April, you may still treat it as received at credit date because you had control of it.

If you use accruals

You’re looking for when you earned the income and had the right to it. That can mean:

Completed work: If you finished the deliverable by year end and your contract says you can invoice upon completion, the income is likely attributable to the old year, even if paid later.

Milestone-based work: If your contract pays per milestone, the relevant milestone date matters. A milestone achieved before year end may be income in the old year.

Part-completed work: For longer projects, you may need to recognize income for work done up to year end (sometimes called work-in-progress). This can feel awkward, but it’s a normal part of accrual accounting. You’re essentially estimating how much value has been delivered by the cut-off date.

Retainers and advance payments: If you receive money in advance, accruals may treat some of it as unearned at year end, especially if it relates to future work. Cash basis would usually count it when received, while accruals might defer it to match the service period, depending on the rules you must follow.

When you can’t invoice until after year end

Some contracts specify that invoicing happens only after a sign-off, acceptance test, or formal approval. If the client’s acceptance occurs after year end, you may not have a legal right to payment by year end even if you did most of the work. Under accruals, that could push the income into the new year because it wasn’t yet “due” or reliably measurable at the cut-off date.

Practical evidence to keep

Year-end positions are easiest to defend when you have documentation. Useful evidence includes:

Project delivery emails or acceptance confirmations.

Contracts showing milestone definitions and payment triggers.

Invoices with dates and descriptions of services performed.

Timesheets or platform logs showing when work was performed and approved.

Payment confirmations showing when funds became available to you.

Business owners and company directors: salary vs dividends vs timing choices

If you operate through a limited company (or similar corporate structure), income timing can be even more nuanced because the company is its own taxpayer and you may extract money in different ways.

Director salary through payroll

Salary is usually taxed based on payroll reporting and pay dates. If you run monthly payroll and the pay date is after year end, the salary is typically in the later year. But if you accrue salary costs in the company accounts, you need to ensure your payroll filings and tax reporting align with what was actually paid or legally payable.

If you intend to pay yourself salary “for the year” right at the end, you should be careful about:

Whether payroll was actually processed by the year end.

Whether the company had the funds and a clear obligation to pay.

Whether the payment date and payroll submission match your claimed timing.

Dividends

Dividends often hinge on the date they are declared (and the paperwork supporting the declaration), not simply when the cash moves. If you declare a dividend right before year end but transfer the money after, you might still have a dividend belonging to the earlier year depending on the legal declaration date and whether shareholders had an entitlement at that point.

Dividends require proper process: board minutes (or a written resolution), dividend vouchers, and sufficient distributable reserves. Without the paperwork, trying to treat a late-year transfer as a dividend can unravel quickly and create tax and compliance risk.

Director loan account movements

Sometimes an end-of-year transfer is really a repayment of money you lent to the company, or a temporary loan from the company to you. These have different tax consequences. The timing of loan balances at the year end can matter, especially if loans from the company to a director trigger specific charges or reporting requirements.

Key takeaway for company contexts

For company owners, timing is not just about when money was earned; it’s about corporate actions, payroll dates, legal entitlements, and documentation. If you’re unsure, treat “just before year end” as a signal to slow down and ensure you have the paperwork and accounting entries that match reality.

Property income: rent due dates, receipts, and arrears

Rental income near year end can be confusing because tenants may pay late, pay early, or pay irregularly. You also might have letting agents holding funds that were collected before year end but paid to you after year end.

As with self-employment, the accounting basis matters. Under a cash-like approach, you recognize rent when received. Under accruals, you typically recognize rent for the period it relates to, especially if rent is due under the lease by year end.

Common scenarios include:

Rent paid early: A tenant pays next month’s rent before the year end. Under cash basis you might include it when received; under accruals you may allocate it to the future period if that is required under your rules.

Rent paid late: Rent due before year end is paid after year end. Under accruals you may still include it in the old year if you had the right to it (and then treat it as a receivable). Under cash basis it goes in the year you received it.

Letting agent collections: If the agent collects rent before year end but passes it to you after year end, the key question becomes when you are treated as having received it. Often, money held by an agent on your behalf can be treated as received earlier because it is effectively your money, subject to the agency arrangement. The contract and practical control matter.

Arrears and bad debts: If rent is overdue and you suspect it won’t be paid, accrual accounting may still require recognition and then an adjustment for irrecoverable amounts, depending on your rules and evidence. It’s important not to “solve” this by simply moving income into the next year without justification.

Interest and investment income: statement dates can matter

Interest and investment income can have their own “crediting” rules. For example, interest might accrue daily but only be credited monthly or annually. Dividends might have a declaration date, an ex-dividend date, a record date, and a payment date. Which one matters for tax depends on the system you’re in and the type of investment.

At year end, people often see an interest line item on a statement dated a few days into the new year and wonder if the interest belongs to the old year because it “relates” to it. In many cases, the decisive factor is when the interest was credited or when you became entitled to it, not the period over which it accrued.

The practical approach is to rely on official tax documents and statements (annual summaries, broker tax reports) and to avoid manually reallocating unless you’re confident the official document is clearly wrong for your circumstances.

“Constructive receipt” and other anti-avoidance concepts

Many tax systems contain a concept similar to “constructive receipt,” designed to stop people from delaying tax by refusing to take money that is already available to them. The idea is that if you could have taken the money, but chose not to for convenience, it may still be treated as received.

Examples that can trigger this kind of thinking include:

You ask a client to hold payment until after year end even though they were ready to pay before.

You have a payment sitting in an account you control (like a platform wallet) and you simply choose not to withdraw it.

You have a cheque dated before year end that you could cash, but you wait.

This doesn’t mean every late payment is suspicious. Most late payments happen because of normal business processes, client payment cycles, weekends, banking cut-offs, or genuine delays. The point is simply: if money was available to you without restriction before year end, you may not be able to argue it belongs to the next year just because you moved it later.

Practical workflow: a year-end checklist for boundary income

If you’re dealing with income earned near the end of the tax year, use a structured approach. Here’s a practical checklist that works well for both individuals and small businesses.

1) Map your boundary period

Define a window around year end (for example, the final two weeks of the year and the first two weeks of the new year). List all income events in that window: invoices issued, payments received, payslips dated, platform payouts, and agent remittances. Most mistakes come from ignoring the “spillover” into the new year.

2) For each item, record four dates

For each income item, capture:

Date work was performed or delivered.

Date invoice was issued (if relevant).

Date income became legally due/entitled (if relevant).

Date cash or credit was actually received/available.

You may only end up using one of these dates for tax, but collecting all four gives you clarity and an audit trail.

3) Confirm your accounting basis and apply it consistently

Write down: “I use cash basis” or “I use accruals.” Then apply that rule to each item. Consistency matters. If you treat some late-year invoices on accruals and others on cash basis without a valid reason, you create risk and confusion.

4) Look for items that are easy to misclassify

Pay special attention to:

Platform balances credited before year end.

Agent-held money collected before year end.

Advance payments, deposits, and retainers.

Refunds and chargebacks after year end that relate to pre-year-end sales.

Mixed invoices that span periods (part old year, part new year).

5) Document your reasoning

You don’t need a novel, but a short note for each tricky item is powerful. For example: “Payment credited by platform on 31 March; withdraw on 2 April; treated as received 31 March because funds were available.” Or: “Milestone 2 achieved and accepted 28 March; invoice issued 30 March; included in old year under accruals.”

6) Reconcile totals to statements

Even if you use accruals, reconcile your income list to invoices and bank statements. If you use cash basis, reconcile to bank statements and platform payout reports. The goal is to spot missing items or duplicates.

7) Watch the knock-on effect: tax payments and cash flow

Income pulled into an earlier year can increase tax due sooner. Income pushed into a later year can reduce current tax but may increase next year’s. Neither is inherently “better”; what matters is accuracy and planning. If you realize that late-year income will land in the current year, consider whether you need to set aside cash immediately for tax, especially if your tax bill is calculated on annual totals and paid later.

Common scenarios and how to handle them

Scenario 1: You finished a job on the last day, invoiced the same day, paid next week

Cash basis: Usually taxed next year when paid (assuming payment wasn’t available to you before year end).

Accruals: Often taxed this year because you completed the job and had a right to payment at year end.

Scenario 2: You did the work, but acceptance/sign-off happened after year end

Cash basis: Typically taxed when paid.

Accruals: May be taxed next year if you weren’t entitled to payment before sign-off and that sign-off wasn’t obtained by year end.

Scenario 3: Your client paid on the last day, but the bank shows it the next day

Check payment confirmation and bank processing. If it genuinely cleared and was available before midnight year end, it may belong to the earlier year under cash basis. If it was initiated but not cleared or not available, it may belong to the later year. Keep the confirmation as evidence.

Scenario 4: A platform credits your wallet before year end, you withdraw after

Often treated as received when credited, because you had access and control. The withdrawal is just moving your money from one place to another.

Scenario 5: A tenant pays three months’ rent in advance the day before year end

Cash basis: You may include it when received, even if it relates to future months, depending on your rules.

Accruals: You may allocate the rent across the months it relates to, meaning some belongs to the next tax year.

Scenario 6: You are paid through payroll; payslip date is after year end

Employment income usually follows the payroll pay date and official reporting. The fact you worked the hours before year end doesn’t necessarily move the tax point.

How to avoid mistakes that cause penalties or headaches

Most problems with year-end income come from one of three errors: double-counting, omission, or inconsistent treatment.

Double-counting

This happens when you include an invoice under accruals in the old year and also include the payment under cash basis logic in the new year. Or you include platform credits and then also include the subsequent bank transfer as if it were new income. The fix is to anchor each item to one recognition point and reconcile carefully.

Omission

This happens when you forget income received in the first days of the new year that relates to late-year activity and you’re on cash basis (so it belongs to the new year) but you fail to record it anywhere because your “year end review” was too narrow. Or you’re on accruals and you forget to include a receivable because payment didn’t arrive yet. The fix is the boundary window workflow: always check both sides of the cut-off.

Inconsistent treatment

Inconsistency is a red flag. If you treat some late-year items as “earned” and others as “paid,” you might be accidentally mixing cash and accrual logic. The fix is to write down your basis and apply it uniformly, only deviating when a specific rule requires it.

Planning moves that are legitimate (and ones that can backfire)

It’s normal to plan around year end. The key is to plan within the rules rather than trying to force a result that doesn’t match reality.

Legitimate planning examples

Managing invoice timing under accruals: If your contract allows you to invoice only after completion, then genuinely completing in the new year rather than rushing a poor-quality completion before year end can shift income naturally, as a consequence of the work timeline.

Managing receipt timing under cash basis: If you are paid when you are paid, then cash basis will naturally allocate by receipt date. You can still plan by monitoring expected payments and setting aside tax reserves accordingly.

Communicating payment terms: Setting clear payment terms in contracts and invoices helps avoid last-minute confusion and gives you better predictability around year end.

Planning that can backfire

Artificial deferral: Asking a client to delay payment when it’s already due and available can invite scrutiny and may not work if constructive receipt applies.

Paperwork after the fact: Trying to create dividend paperwork after year end to “fit” a transfer can cause compliance problems and may recharacterize the payment.

Switching accounting methods without adjustments: Flipping between cash and accrual thinking year to year without proper transition adjustments can cause income to disappear or be taxed twice.

When to get professional help

Many year-end income questions are straightforward once you know your category and accounting basis. But it’s worth getting tailored advice if any of the following apply:

You operate through a company and are moving money around close to year end.

You have large one-off invoices near year end, especially if they span months or milestones.

You have significant work-in-progress on long projects under accruals.

You receive income through platforms, agents, or escrow-like arrangements where “receipt” is ambiguous.

You are considering changing accounting methods or your business structure.

You have cross-border income, multiple currencies, or complex contracts that specify entitlement conditions.

How to explain your treatment if questioned

If you’re ever asked why you treated late-year income the way you did, the strongest answer is calm, consistent, and evidence-based:

State your role and income type (employee, freelancer, landlord, director).

State your accounting basis (cash or accruals) and apply it.