VAT - Special Transactions

  1. Disallowable VAT such as entertainment expenses
  2. Dealing with Fuel scale charges (fuel provided for company vehicles)
  3. Making a VAT Partial Exemption Adjustment
  4. Retail Schemes
  5. Dealing with Late Invoices
  6. Dealing with errors and omissions
  7. Bad Debts
  8. If you incur VAT on other parts of the EU

Disallowable VAT such as entertainment expenses

For certain purchase transactions the VAT is not allowed to be reclaimed as input tax. The most common one is Client Entertainment expenses. In the case of Flat rate schemes there is no impact as no input tax is being recorded in the first place.

The system is pre-set to make the VAT on client entertainment expenses non recoverable Enter the transaction in the normal way including the amount of VAT you have been charged.

The cost of the VAT disallowed is recorded in the profit and loss report as Non-recoverable VAT. In the VAT control account and the VAT 100 report (and VAT Transaction report) the net value is shown as the value of supplies received but no input VAT is recovered.

When dealing with other items that need to be disallowed, enter and SUBMIT a purchase transaction in the normal way. The disallowable amount of VAT will need to be adjusted in the VAT control account. Use a journal entry to do this.

The adjustment amount is entered as a Journal Entry, accessed via the Control menu.

Control - Add Journal

The example shows a disallowable amount of £200.00, posted to the VAT control account and charged to the non-recoverable VAT account as an expense. Note that the VAT input (e.g. Expense) button is selected so that the VAT 100 return correctly displays the adjustment.

Dealing with Fuel scale charges (fuel provided for company vehicles)

If your business provides fuel both for private and business use, and you claim the input tax as a deduction, HMRC require you to use a fuel scale charge to account for some output tax. The scale charge is published periodically by Revenue and Customs. If necessary we suggest using a spread sheet to prepare the charge for each VAT Period. Calculate the VAT amount due from the relevant scale and the number of Vehicles.

Note that for Flat rate scheme users no adjustment is necessary or allowed because no vat on fuel purchases has been claimed as input tax.

Details of the scale charges, which are usually modified at each budget, are available from the HMRC web site. The scales relate to annual, quarterly and monthly VAT accounting periods.

The VAT amount is entered as a Journal Entry, accessed via the Control Name menu.

Control - Add Journal

Making a VAT Partial Exemption Adjustment

If your business is registered for VAT and makes exempt supplies, an adjustment may be necessary to reduce the amount of input tax that can be recovered. We recommend that you consult with HMRC or your advisor before making any adjustments. To record the exempt input tax, use a journal entry to make the adjustment.

Control - Add Journal

See VAT - Partial Exemption Adjustment for more information.

Retail Schemes

If your business is registered for VAT and is a retailer, gross takings will be posted to the system using the Cash/Card takings process but off-line calculations will be required to find an adjusting amount of output tax. That adjustment is then posted using a VAT Journal.

Control - Add Journal

See VAT - Retail Schemes for more information.

Dealing with Late Invoices

Occasionally you may receive a suppliers? invoice which should have been included in a prior VAT period. Simply enter the transaction as usual; making sure that it is dated at the tax point date (not today?s date). The system will include the figure in the next VAT return.

Dealing with errors and omissions

We recommend that you consult with your advisor when dealing with any error, omission or bad debts issues before submitting your VAT return. Using a Journal Entry directly to the VAT control account can make adjustments. The process is similar to that for making partial exemption adjustments.

Bad Debts

For bad debts, various rules can apply depending on your vat scheme.

Standard and Flat Rate schemes

Provided you have:

You can reclaim the VAT already paid. The actual vat recovery can be achieved by clicking the WRITE-OFF box adjacent to the relevant invoice in the receive payments screen. The system will post the appropriate entries to recover the VAT.

Sales - Receive Payments

Cash and Flat Rate Cash basis schemes

As by definition the debt remains unpaid no VAT has been paid to HMRC and so that there is no VAT to reclaim.

If you incur VAT on other parts of the EU

EU VAT is VAT incurred in an EU member state. If you are registered for VAT and you buy goods and services in another member state you may have to pay VAT there. This need not happen if you buy goods for removal to the UK (an acquisition), but it may apply if what you buy is used there, for example if you take part in an exhibition or trade fair.

It is not possible to recover VAT paid in another member state as input tax on your VAT return. You may be able to recover it using a scheme known as 'Refunds of VAT in the European Community for EC and non-EC businesses'. The details are in HMRC notice 723. We suggest you consult either this notice or your advisor for further advice. However two situations can result, the first is that the VAT is recoverable, and the accounting has to deal with this. The second is that the VAT cannot be recovered (Usually hotel and subsistence expenses are not recoverable).

Accounting where the EU VAT is recoverable

The profit and loss report will show the full cost (EU VAT included) against the expense account. The amount recoverable is shown as a negative Other Expense. The Balance sheet shows the amount as a Current Asset ?Other until the cash is received. The VAT 100 report will show the purchase value including the EC VAT in boxes 6 and 9, because the EC VAT is out of scope for UK VAT purposes.

When the cash is received from the EU member state, use Miscellaneous deposit to post the cash.

Accounting where the EU VAT is non recoverable

The profit and loss report will show the VAT exclusive cost against the expense account. The amount not recoverable is shown as an Other Expense. The VAT 100 report will show the purchase value including the EU VAT in boxes 6 and 9, because the EC VAT is out of scope for UK VAT purposes.


Related Topics