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For example, I do some work for my employer in the 2016-2017 tax year, but they take a while to pay me and I only actually get paid in the 2017-2018 tax year.
In which tax year should that income be included - the year when the work was done, or the year it was paid for?
It depends on whether your tax accounting is on an accrual basis or cash basis. The UK government (at least) refers to the former as traditional accounting.
In that method of accounting, whatever it's called, you book the income when you invoice the work (that is, when it accrues). If you're paid in the next year, your balance sheet will show the outstanding balance in accounts receivable. Similarly, you book expenses when you incur them, not when you pay them. So if you bought a new computer for your business with a deferred payment plan, you book the entire expense at the time of the purchase, not the time of payment.
Cash accounting is simpler. You can only use it if your total turnover from all of your businesses is less than £150,000 annually. You also cannot use cash accounting if your business is a limited company or limited liability partnership, or is on a list of certain types of businesses:
- Lloyd’s underwriters
- farming businesses with a current herd basis election
- farming and creative businesses with a section 221 ITTOIA profit averaging election
- businesses that have claimed business premises renovation allowance
- businesses that carry on a mineral extraction trade
- businesses that have claimed research and development allowance
- dealers in securities
- relief for mineral royalties
- lease premiums
- ministers of religion
- pool betting duty
- intermediaries treated as making employment payments
- managed service companies
- waste disposal
- cemeteries and crematoria
For more information about traditional accounting, see https://www.gov.uk/government/publications/how-to-calculate-your-taxable-profits-hs222-self-assessment-helpsheet.
I am not a chartered accountant; trusting tax advice from random strangers on the Internet is not a winning strategy. The following is a summary of information from the Charity Tax Group's page on PAYE.
As an employee, the pay should have occurred during or around the time the work was performed. Perhaps the term "employee" is not correct for your situation -- perhaps you are a contract worker -- in which case, the following does not apply.
HMRC requires charities to collect Income Tax and NICs from empoyees' pay as it is earned. The charity pays these collections to HMRC under Real Time Information (RTI), except in very specific circumstances. A charity must operate PAYE on an employee if that employee's earnings reach the National Lower Earnings Limit (LEL). There are several specific limits, for example GBP 486 in a month.
If PAYE or PAYE:RTI is (or would have been in the normal course of reporting even if not reporting was legal) provided to HMRC on your earnings in the 2016-2017 tax year, that income is included in that tax year. However, you have no visibility into this process, so how do you know in what year the charity engaged in required reporting? At the end of each tax year, the charity must provide a Form P60 detailing income tax, NICs, and other deductions, even if these are zero. Thus, for each tax year, you have direct information from the charity. This information should match the pay stubs you receive from the charity for each payment of wages (and other forms of remuneration).
This is not a legal opinion, but a common sense one. You are not being taxed on the work you perform. You are being taxed on the money you receive.
If you didn't get the money in a particular year, you would not claim it as income. Consider that some employers may "neglect" to pay, especially if the company is having financial difficulties.
You would not want to (or have to) pay taxes on money you've not received.
