A client (Ltd co, VAT reg) has given me all the receipts for his materials to which I will reclaim the appropriate VAT, but he has now told me that a payment that has been banked was for a friend of his, that he purchased some materials for.
Just to clarify if reclaiming VAT on materials I would then have account for output tax on the payment received from his friend. eg total received x3/23.
Is this the correct and best way to deal with this?
Provided that you would normally charge VAT for these materials then yes I would agree that you need to account output tax in the way you have suggested
This is probably fine to do if the payment is only a very small amount and a one off but techn ically it is not a transaction of that business as it was on behalf of a friend.
If it was high value, or there were a number of these type of transactions that mount up, it would be better to just cancel these entries out and not account for the vat because if the transactions were sizeable and included as a sale and purchase they would distort the gross profit .
Unless I'm reading the OP incorrectly, the business has bought goods for someone else and is putting them through their own books. If this is the case then the answer is this receipt should not have been put through the business at all.
If, however, the goods have been bought by the business and sold to the third party then VAT should have been charged on both purchase and sale.
