Exempt and partially-exempt businesses for VAT purposes
How do you post the adjustment for reducing the input tax when using the partially exempt vat rules?
For example, I use VT Transaction software. The VAT return shows the following:
Outputs - 503.27 Inputs - 776.87
Refund due - 273.60
However, using the de-minimus rules and also that the total exempt inputs cannot be more that 50% of all inputs, I am not able to claim £776.87 , instead it needs to be 190.73.
I can put in a journal for cr 586.14 to inputs account so it gets included in the vat return, but do I then have to debit each expense that has not been included? If so this seems long winded, especially as you're then supposed to do an adjustment one a year.
First, you can make any Partial Exemption adjustment on a VAT Return. Even if the adjustment were to exceed £10,000, you can (and should) include it on your VAT Return.
Your question concerns the accounting entries. In my experience, the irrecoverable input tax has its own cost code in the nominal ledger. This avoids the need to adjust each relevant cost code, which would be a huge task. Also, by having its own cost code, you can budget for the cost each year.
In my experience, the irrecoverable input tax has its own cost code in the nominal ledger. This avoids the need to adjust each relevant cost code, which would be a huge task. Also, by having its own cost code, you can budget for the cost each year.
Gill,
Just to back up what Les has said. HMRC's Self Assessment notes for filling in the Self Employed pages indicate that they expect to see any "adjustments" in either box 15 or 29. This would be consistent with the adjustments having their "own cost code".
Brilliant, thank you both. It didn't make sense to me to post to the individual expense codes, as some of the tax is a fraction so would take me a while! Thanks again
