I have a flat rate client whose sales during 09/10 included 2 invoices that weren't paid. His FR VAT (at 10%) for that quarter was calculated on his total sales - which would have included these 2 unpaid invoices. So far as I can find out, they weren't written off as bad debts.
As well as them figuring for VAT, I am supposing that his accountant would also have also included these invoices in his total sales - on which he would have been taxed.
Now he's on Standard VAT (cash based). Also, there's a good chance that the money from these invoices will at last come rolling in.
How should I account for this income when/if it does? It's already been included in his old VAT scheme - so should I count it as T9? - and he's already paid tax on it, so I don't want to expose him twice over.
Not 100% sure how Sage works with the Flat Rate scheme but if the invoices have already been included on a VAT return would Sage pick them up again anyway?
Unfortunately not. The invoices are almost 2 years old but are only now likely to be paid. Back then the accounts were not on Sage (they were on an Excel spreadsheet) so they're off its radar completely.
Pragmatically, I am tempted to ignore these receipts since tax has been paid on them, they have figured in previous CT calcs and the correct VAT - for the time - was paid (by virtue of their being included in the total sales for that period).
If I include them in the accounts, my client is going to pay tax and vat all over again, which isn't what HMRC would have expected. It's a stinker.
-- Edited by AICB on Tuesday 1st of November 2011 10:57:30 PM
Musing about it while loading the dishwasher I wondered, instead, if I should treat it as a refund against a previous business loss (i.e. where he accounted to the taxman for a sale that was never paid for).
I don't think it's right that he should have to pay tax or VAT again. Really if the invoices were left unpaid and not written off they should still be being carried forward with the debtors, then at this point you would allocate the receipts which wouldn't generate a tax liability as that was already counted when the invoices were raised, and as he's on cash accounting I would then manually amend the vat return that the system produces to take them off the vat as I can't see any other way of taking them out (but then it is early in the morning and I haven't finished my tea yet).
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Jenny
Responses are my opinion based on the information provided. All information should be thoroughly checked before being relied on.
I think you're right, Jenny. I'm going to have to create a neat, invoice-shaped hole in the debtors account and then fit the payments into it when they arrive.
