I've taken on a new client, it's a ltd company, financial year starts 1st May and they became VAT registered on 1st May this year. Accountant completed the year end for last financial year, posting the various adjustments, including creating an accrual account for VAT with a post dated 30/4, narrative 'VAT on stock'. It has a credit balance which is still there and I'm trying to work out what to do with it.
The client has been doing the books himself (it's on Sage Instant, which I haven't used for a while, prefering Quickbooks) and hasn't got a clue about it. He emailed the accountant who said
That figure is the Vat on stock at the start of you vat registration and you claimed it in the June return. Dont know why there is an accrual now, but it might be that you have only reconciled the vat for the period 1/5/10 to 30/6/10 when the stock vat was all dated 30/4/10. The June vat return was correct though. The VAT does appear to have been reconciled so I'm stumped. Surely VAT on stock at the start of VAT registration would be a debit balance, not a credit? Has anyone got any ideas what to do with this?
When first registering for Vat you can reclaim the Vat on goods purchased for business use up to 3 years prior to registration. On services, such as advertising up to 6 months. See Vat notice 700 page 48. I think the accountant is referring to this as Vat on stock as at registration.
Like you I am confused why he treated this an accrual.
I had a similar case and I treated the amount of the reclaim by Crediting the Directors Loan A/c and Debiting Vat Liability a/c. At the year end HMRC would be shown as a Debtor. I am not a qualified Accountant so I may be wrong. However, I am sure Accountants do sometimes get it wrongPlease read my topic in General Book-keeping and Accounting Do accountants get it wrong? Love to have your comments.
I'm sure accountants do get things wrong! I will have to email him, but it has been reassuring to get a second and third opinion first.
I would also go with crediting the purchases/expenses account(s) since those purchases/expenses would have been recorded at VAT inclusive value and now need to be recorded net of VAT.
I think it has been accrued because it relates to the year end accounts from the previous year.
If I understand correctly, the accrual has been b/f from the previous year. I assume because the registration was in place at the time.
If this is the case I agree, it should reduce the opening stock, so DR VAT on Stock accrual, and Cr Opening Stock to remove the inclusive VAT element of those items still in stock. It may also apply to some fixed assets as well, which may have to be reduced as well.
I assume the accountant did the calculation and therefore, will know which items the VAT was applied to (all stock, or a mixture of fixed and current assets)
