Hoping for your esteemed advice. I have been working away on a trial balance for a friend with no hicups or so I thought. He never kept records so I just downloaded his entire bank transactions into a spreadsheet and created another column with a drop down list to classify each and every one of them.
My query is though how to account for the VAT?? The total of the sales includes the vat element!! as do all the totals of the different purchases. He also has the four cheques listed he paid over to the VAT and I have to admit im slighlty confused on how to go forward. Usually I have just worked with a trial balance exported from sage or some other accountancy package which already has accounted for the VAT.
I hope I have explained this ok and that someone can help me with a solution.
Are they VAT registered. If not then no problem, carry on with Tb as normal.
If they are then it is important you identify how they are accounting for Vat on their returns? That should be your source, even if it is treated as a sales/ purchase ledger. Youcan then allocate everything properly and reconcile the bank.
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Yeah they are vat registered. The total amounts obviously include a portion of VAT paid or received so how do I account for that in the trial balance because the sales and purchases are being overstated. Do i just have to analyse the vat returns and journal them out of the sales and purchases?
You need to know what Vat scheme is being used, as that will make a difference. While the sales figures are likely to include the vat element (don't know if they export), which purchases it's more complicated unless you have the invoices to. You can't really assume every purchase is vatable.
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Tony
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He never kept records and he is vat registered?? Surely that is against the law...HMRC will not like that. I know that is not very helpful but there is more important things have to be sorted there before the trial balance.
Hi Noel. If it is a take-away chip shop, for example, then purchases would be fine. Obviously, if the result is negative, you'd have to cast your net a bit wider; say rent and rates. All you can do without detailed records is discuss it with the client and estimate. For income tax purposes alone, it doesn't matter which outgoing the VAT box 4 amounts are deducted from.
If he has submitted VAT returns then he must have found his figures from somewhere... ask him where!
Have you thought that doing things this way is going to exclude anything that doesn't go through the bank for example, cash or credit card transactions or anything bought from his personal cash (but of course clients never do that do they!???!)
You are getting a very incomplete picture here however your suggestion of analysing the VAT returns to start with is a good one IF the VAT returns have supporting paperwork and you can be reasonably sure that they are accurate.
Hi and Thanks to all for your advice, it is so helping having professionals willing to offer their time and advice through this forum.
Ok il just update. The client is vat registered under a standard accounting scheme. The vat periods are out of sync with his 12 month trading periods as well.
They do have vat records so I am therfore able to asertain exact figures and details of each item.
However, as they do have any other records I felt the best way forward was to download their whole 12 months bank statement onto a spreadsheet and they classify everyone from a drop list i created. Basicaly added another column so all they had to do was pick the classification of each transaction.
After this I was then able to sort by classification & date. After this i then used the SubTotal feature to show the totals of each classification for trial balance purposes.
I started an Extended TB and my thoughts were just to journal back the vat transactions through the bank account in order to state sales and purchases correctly.
I would appreicate your advice firstly how i went about this and secondly my suggestion on now dealing with the vat. Is there an easier way to build up accounts when all somone gives you is cheque books and lodgments etc!
In the absence of other records apart from the VAT ones I think you've started in a very good place, after all, what goes through the bank is a known, deifnite quantity. If you are fairly sure that the VAT records are good then once again, your idea of journalling the VAT values out of sales and purchases is in my view a good one.
There is never an easy way to build a set of accounts in the absence of good information and it sounds to me as if you have certainly done the right thing with the information given but as stated above, I would be worried that I am not seeing the complete picture e.g. cash/credit purchases. I guess an easy way to check that is to take the sales and purchase values from the VAT returns and compare with your TB.
In order to keep your records simply I would recommend changing their VAT periods to be in line with their company year. I have had to do this with many clients and it is a very simple case of sending a letter to HMRC, who action it very quickly. You will then of course have to do a return for one or two months until the periods line up correctly.
Youre so kind for coming back again much appreciated. Without blowing my own trumpet I would say i am proffiecient in the use of the sages and excel + abit of VT etc. I use to work for a building contractor and build a project analyes tool through excel from scratch (as sage was limited to a degree for what was needed) this was then used for all company projects. We were able to detect not just what area but the indiviual item on that area that run over budget. It allowed for critical financial decisions and competitive pricing going forward.
Sorry im blabbing im just saying that I know i am competent but this wee senario has raised a few questions & cross roads with me.
In regards to the vat period change that is under way. Credit card facility is Natwest which is directly debited, again just classified to the statements and entered onto the spreadsheet under individual classifications. Im told there were no cash transactions. I am really just trying to get it to a point where I can produce his accounts and file tax returns. So your help has been very much appreciated Clare.
Noel
PS There is a whole CIS area that has to be sorted as well!! returns dont reconcile with their deduction records and their payments dont reconcile with their returns!!! But I have taken enough of your time. Just one last question if I may I have decided to charge £480 for prducing his accounts and filing his tax return but now realising the lack of information and the work to build up from data to information to trial balance to accounts before even the tax return I feel like I should be charging more! Or am I just being greedy??/
