One client on cash accounting - using Sage, has just commenced paying electricity by monthly fixed direct debit (easier on the cash flow), however, what is the best way to account for the VAT?
The DD is for 595 per month, when the first month's invoice was received it was for around 395.
Say the 595 payment on account was posted using 5% VAT (co is charity so has the 5% rate) but the actual VAT for the period should only have been on 395. Will putting a credit note through for 200 adjust the VAT correctly? Do I do a journal (but would this put the tax control account out?)
You can ask the electricity company for a VAT invoice for the payment you made- they must give you one,especially as you are on cash accounting, that should simplify things. Or you have to use magic to make it work on Sage.
I don't think the invoice makes any difference to Sage cash accounting as it calulates the vat on the payments made. So if you have more payments than the invoice, then after allocating (if you want to) you would just be left with a payment on account. You effectively have an overpayment so I would have thought it should stay on the account as such. As I understand cash accounting when you receive a receipt in advance you have to pay the vat up to HMRC so surely the same applies to payments you make in advance of supplies.
Sage only appears to use receipts and payments to calculate vat in cash accounting, so you have to ensure that invoices are cleared in this way. If a transaction is cleared with a credit note then it wont show at all on the vat return - after all if an invoice is cancelled by a credit then there is no vat in cash accounting.
I think you've clarified my mind a bit. Yes Sage does allocate VAT on receipts and payments, so I suppose in this case we'll be gaining for a while, it's strange when you're in a situation sometimes you can't see the wood for the trees.
Hi Atilla
We do get VAT invoices but, obviously, they don't tie up with the direct debits. Sometimes with Sage it's difficult/impossible to get it to do what you want it to do. Cash Accounting on it is not the easiest!!!!
No it isn't!! You have to give payments on account a tax code - and it doesn't seem right giving it a T1 tax code to claim back the VAT without an invoice. Could you give it a T2 tax code and then do a journal to correct the VAT when the invoice is received??? dunno?!?!
hi, i meant get an invoice for your actual dd payment, they should give you one.or maybe you can create a new nominal code for the amount over paid. i thought even with cash accounting you have to have an invoice/receipt as a proof matching the amount paid/received .
Just a thought... You make a payment for electricity, later they issue an invoice on what you have a tax point (the date of invoice). HMRC clearly states in case of continuous supplies ( electricity, etc too) the tax point is either the payment or the invoice, whichever was first. And it is the payment. Electricity company takes the money ( you haven't really got a choice how much you pay) so as they don't actually get the tax point right - should be payment date not invoice date, at least they should automatically issue invoice for the money they've taken and just once a year issue an extra invoice or a credit note for the corrections after meter readings. I read somewhere on HMRC website they do know about the various issues with utility companies but as they are billing millions of people they can get away with it as it would cost too much money to change their billing system. So is it only little people who has to get everything right???
-- Edited by attilabenko on Thursday 14th of April 2011 10:33:00 AM
Yes, I will try to find the link on HMRC website, their example was for electricity. But than comes the question if you still have to have an invoice as a proof of your payment and the invoice is for different amount how does this work??? Also I think electricity is not just the basic rule for advanced payment but it is payment in advance for continuous supplies...
