I have a client (sole trader) that has gone over the VAT threshold. The first VAT return is for one month only which actually doesn't help as it then means the VAT return won't coincide with year end - but I'll worry about that later.
My main problem is how to deal with this in either Sage or VT. I have searched around the internet and can't find anything with my search terms. Or is it because it is so blindingly simple that it isn't worth asking? Is it just a case of chaging the code (currently it's T9 for eveything) and then reconciling as per the date of the return. How would it be done in VT?
Another point - because it is only the one month and there will be considerable VAT from pre-registration expenses there will be a refund due from HMRC. How do I actually post these pre-registration VAT expenses? What nominal codes do I use? I'm assuming it will be part of the "Adjustments" in the VAT return.
They don't teach these scenarios when you are learning bookkeeping.
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Never buy black socks from a normal shop. They shaft you every time.
I'd be inclined to work the VAT out manually for that initial return, and then use journals within the software to make it balance with my figures - especially if there are a lot of transactions.
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Vince M Hudd - Soft Rock Software
(I only came here looking for fellow apiarists...)
Not sure how you would do from a VT viewpoint as i dont use VT for bookkeeping (just year end accounts)
From a SAGE viewpoint you would need to start coding your invoices from date of registration as eitiher T0, T1, T2, T5 or T9 depending on the VAT status.
For pre registration expenses you would need to ensure that any VAT qualifies to be reclaimed ie within timescales and if goods the business still has them or if a service the service hasnt been used when become VAT registered.
If they are pre registered expensess i am assuming they have already been posted to SAGE. If so then you could journal the expenses
Dr 2201 Purchases Tax Contro with the VAT (T1 code)
Cr Relevant expense accont with the net amount (T1 code)
Cr relevant expense account where gross amount posted (T9 code).
This should mean that the VAT is picked up on the VAT return and the expense is now shown as net of VAT as opposed to gross.
If they were expenses then the cost has probably been used and you wont be able to claim back the VAT.
If you can then looks like you have a prior year adjustment on your hands to sort out as the expense will have already been rolled into the profit and loss reserve brought forward at the start of the current year.
You are allowed to reclaim VAT on items you still have in your possession for up to four years prior to registration.
I think I may be wording this badly. It isn't the expenses I am claiming. It is the VAT element. When originally entered into the books it was the VAT inclusive figure that was used for all figures as the business wasn't VAT registered.
I'm trying to find out how to claim the VAT element and which nominal codes to use. The total will be worked out on an Excel spreadsheet.
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Never buy black socks from a normal shop. They shaft you every time.
HI Peasie I know what you are meaning. You have got an expense of say £117.50 for a few years ago when say the VAT rate was 17.5% and the invoice was expensed at £117.50 but you want to claim the £17.50 VAT.
Yes i know you can claim VAT on goods up to 4 years before registration and services up to 6 monhts before registration provided you still have the goods or the service hasnt been expended at the date of VAT registration.
If this is the case then the expense will have already been transferred to the profit and loss reserve in your current years figures.
To adjust the journal will be
Dr Purchases VAT N/C 2200 £17.50 (T1)
Cr Profit and Loss Reserve N/C 3200 £17.50 (T9)
Dr Profit and Loss Reserve N/C 3200 £100 (T1)
Cr Profit and Loss Reserve N/C 3200 £100 (T9)
By adjusting the profit and loss reserve this is effectively a prior year adjustment which if your an unsure how to treat then you could leave for the clients accountants to sort by doing the following journal to restore the Profit and Loss Reserve
Dr Profit and Loss Reserve N/C 3200 £17.50 (T9)
Cr Prior Year Adjustment N/C 3250 (put in the reserves) £17.50 (T9)
As the VAT to be reclaimed is spread over the previous three years it will then affect three different years. Do all three years need adjusting? Given the amounts involved and the time taken to adjust three years accounts then it's hardly going to be worth doing.
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Never buy black socks from a normal shop. They shaft you every time.
Just leave for the accountant to sort out how they are going to adjust for the prior year adjustment. Isnt really your concern unless you are responsible for preparing the stat accounts.
I would just dump the adjustment in a prior year adjustment account then leave notes as to what it is and what period it relates too.
If you are the accountant who is preparing the stat accounts then you should know how prior year adjustments should be treated and will be your call how you want to treat.
It has been myself that has prepared them up until now as they have been straightforward. I'm just finding it odd that this is the first I've seen any mention that reclaiming of pre-registration VAT would involve adjusting the actual accounts for previous years. Any mention I've seen on forums, blogs, HMRC seems that the adjustment is made in the first VAT return after registering. I just haven't figured how to make these adjustments. Altering previous year's accounts just doesn't seem right. I think I'll need to contact HMRC to seek their guidance.
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Never buy black socks from a normal shop. They shaft you every time.
Dont see how it cant be a prior year adjustment as you are now effectively restating the previous years figures. As the VAT element you want to now reclaim would have previously been expensed. Therefore by now reclaiming the VAT the profit in previous years have been understated.
You may wish to just adjust for it in the current year if the amounts involved arent material but the correct way would be via a prior year adjustment.
You probably havent seen any mention of adjustment of previous years accounts as any information is given just from the VAT return viewpoint rather than the accounting treatment. Yes pre registration claims are made on the first VAT return and it easy to do if the expenses are in the same financial year (both from an VAT and accounts viewpoint) but if in an earlier financial year then by inference you would need to do a prior year adjustment.
HMRC i dont think will be off any use as they will just look at things from a VAT return viewpoint rather than an accounting viewpoint. You should consult whoever you turn to for accounts guidance as to how should be shown.
This intrigued me so I have had a scout round on HMRC website.
It does appear that it is entered in the year of registration, and can either entered as a income credit, or an adjustment/ revaluation to opening stock. Similarly VAT on Capital expenses can be a credit, or an adjustment to the Asset Pool.
BIM31600 is the source. Others may interpret differently, so have a read and see what you make of it.
I would also add that BIM31600 is the tax treatment.
How it would be treated in the financial statements, is another story. Luckily, this is a sole trader, so not that critical but I wonder how it would be treated if filing to Co House.
Having said all that, I have just realised that the gain can only be recognised when the refund is recognised (in previous years it did not exist), which will only happen when HMRC make the refund. Therefore I would say it only affects the P&L and BS, only in the year the refund was due.
