When we set up our accounts and registered for VAT we had some UK customers with deferred payment terms and little or no credit from our suppliers, so took advantage of doing our VAT on a cash basis.
This was two years ago now and we now have ONLY European VAT registered customers (so invoice zero VAT) and we have reasonable credit facilities from all our UK and other suppliers and hence thsi now has zero advantage.
We have recently moved to a monthly VAT return as we are in constant repayment situation and the VAT lady came to check us out when we switched to this and suggested that it is their "preference" (not obligatory) that we move to a normal invoice basis for VAT.
Our accountants have now added their weight to this advising that we really should do this too, but our accounts package (Microsoft Office Accounting 2009) gives a dire warning about ensuring all transactions are corrected for VAT, as we are clearly always in the middle of a VAT period and have transactions that may I guess be duplicated or missed completely in the switch.
Anyone have any experience of this and anyone have any suggestions on best way to ensure that the first VAT 100 done under invoice basis captures all correct VAT and if any is duplicated or missed from last return.
Then if any was duplicated or missed where and how would be best to correct this?
If you have done your last cash basis VAT return to say the period to Feb 2011 then all you need to do when doing the month to Mar 2011 on an invoice basis is ensure that all debtors and creditors at Feb 2011 are included in your Mar 2011 VAT return as these wouldnt have been included in your Feb 2011 as they wouldnt have been received/paid at this point. (hence not included from a cash basis viewpoint)
Of course you need to ensure that all the invoices dated in the month to Mar 2011 are included in your Mar 2011 VAT return.
Thereafter should be fairly straight forward.
Not sure if you need to notify HMRC of the change in basis from cash to invoice. Give their helpline a call to ask. The number is on HMRC website www.hmrc.gov.uk
VAT Helpline say they do not need notifying of the change, so at least that is OK.
Only question is how to post correctly/journal correctly any VAT that is for February Purchases that were not paid before 28.2, as I assume these VAT amounts would not be picked up by software after changing to invoice basis?
Is there a simple journal method to move it into that period so it is picked up, as otherwise the repayment from HMRC won't match the VAT liability report in accounts?
i.e. We have an invoice from O2 for company mobiles and the invoice is dated 11.02.11, but was paid by DD on 01.03.11.
The VAT on this was not therefore picked up in Feb return as that was done on cash basis and if we switch to invoice basis it would be missed in March return as the invoice is in February.
If I add this manually to return, which is simple, the VAT repayment received will be higher than the accounts is expecting from the return.
Ridesy
-- Edited by Ridesy on Thursday 10th of March 2011 04:03:01 PM
Sorry but cant help as not aware of the software you use.
Was just explaining how should be done from a theoretical viewpoint.
I know that in SAGE the items in Feb that hadnt been picked up would be picked up when you moved onto an invoice basis as although they are before the period that is being reported on as they havent been reconciled (already included in a previous VAT return) then they would be included in the March VAT return.
When you posted your O2 invoice say it was for £100+VAT then entries would be
Dr Telephone £100 Dr VAT £20 Cr Creditors £120
As hadnt been paid by the end of Feb then the accounts figure for VAT would include the £20 although the VAT return wouldnt. So the accounts and VAT return would be different. This would always be the case as when you operate on a cash basis your accounts are always different from your VAT return due to movement on VATable debtors and creditors in the period.
Thinking more logically about it, I think it will work itself out OK as you describe, as the VAT for the O2 bill is in the correct place.
So if it is not picked up by the VAT100 report for March when done on invoice basis, I can add this in by hand to the report/claim and when the repayment comes through it should net off against the correct amount of VAT.
I assume the dire warning message is really there as you could miss that piece of VAT to reclaim, or pay back, but the VAT elements are in the VAT codes so will balance out provided I manually adjust the VAT100 report and claim.
