We retail agricultural products and some machinery with most customers been VAT registered, but have come across a query which we need some support on.
We have a customer purchasing a machine from us who is not VAT registered, they obviously want to offset the cost against the new machine to pay as little VAT as possible as they will not be able to reclaim this.
How should we be accounting for this on Sage, we have previously done an invoice with a corresponding credit on the sales side of the system which offset each other, however I have suspicions this may not be correct, especially given this situation as the traded in machine will not have VAT charged on it?
if we set them up as a supplier how do we write the value of the supplier invoice off correctly against the invoice from customer side of system?
In my mind the correct way of dealing with this is that you have to declare the full sales value of what you are selling so that the turnover/sales and VAT declared in your accounts is correct, which means that you produce your invoice for the full value plus vat.
You can then either note on the invoice that you have taken xyz machine in p/ex valued at £abc and this value is deducted from the full sales value with vat on to arrive at the money they pay you.
Or they provide you with a sales invoice from them with no VAT on it, for the machine that they are effectively selling you.
Either way you should put your sale in at its proper value to keep your sales figures correct, and the part exchange in as a purchase at its part exchange value to keep the value of your stock correct.
I take it that what they want is
Buy a machine from you worth £50,000 (eg) + vat = £60,000
p/ex something worth £20,000 and only pay you £30,000 + vat thereby saving £4000 vat that they cant reclaim.
Big fat no in my book as you in particular would be in for it from HMRC for underdeclaring £4k vat.
Hope that helps
Beverley
-- Edited by BJD on Saturday 26th of April 2014 07:49:54 PM
-- Edited by BJD on Saturday 26th of April 2014 07:51:14 PM
Just picking this up again, as have one to process from Beverley's response:
- Create a customer invoice in Sage from the machinery sold at full price, referencing that a machine has been taken in part exchange, but not factoring into the financials of invoice.
- Create a supplier invoice in Sage for the supply of the part exchanged machine.
- Use the 'Contra' function in Sage to allocate the part exchange against the new invoice.
Two questions:
- Do we need to get an invoice from a customer for the part exchanged machine, this has not happened in the past as it wouldn't be usual for them to supply one?
- Taking a part exchange from a VAT registered customer is relatively simple, part exchange taken in on VAT code T9, if the customer isn't VAT registered, the sale would be on T9, what about the supplied part exchange from them, which VAT code in Sage?
I would process the transactions exactly the same way as you would normally, except code the PX as T0
I am not sure why you are using T9 code as this is normally used for outside the scope of VAT transactions, and never gets picked up on the VAT return.
As Beverley said, sell the new equipment at full price plus VAT (Normally T1), "buy" in the px unit at the agreed px price but code T0. Then contra the two accounts, and receive the balance into the normal bank. There is no need to get an invoice as such.
When you eventually sell the old unit, you only charge VAT on the difference between the buy in price, and the selling price before VAT
Surely a business that doesn't invoice it wouldn't do anything as sophisticated as a journal! More likely in a few years time they get asked if they've still got this machine that's on the asset register, and replying that they traded it in years ago!
Sorry for the hugely delayed reply, I posted a reply in response to the answers above, but can see now that it never went live for some reason! Anyway, here goes again...
I had mistaken the T codes within Sage, I meant T1, not T9 as Wella noted. With regards to invoices from customers/journal entries etc, most are relatively small businesses and are not using computerised accounting, therefore it would be left to their accountant at the end of the year.
The solution you've noted, is what we've been using and have now processed the transaction in question using T0, so thanks for that.
However, it isn't a particularly eloquent solution, is it just that Sage doesn't handle part exchanges well, we have certainly received invoices from motor traders etc where the whole transaction has been shown on the same invoice. With the Sage solution, you receive an invoice with the new machine invoiced and a note referencing the part exchange, but there is no part exchange paperwork and when you contra the transactions, there is again nothing to mention the contra, the statement just shows a payment with a reduced invoice amount.
