Hi everyone, hope you are all well and enjoying the good weather! I have just got back from my jollies, and am not in work mode yet!!!
Hopefully this wont sound like too much of a silly question, and someone will know the answer...
I have a client who is owed money from a contractor. There is no invoice on Sage - I don't think one has ever been added (possibly because a payment application was sent out, and never paid by self billing invoice).
The debtor has now issued a "dividend" - I view this as a simple recovery of bad debt, and would normally clear the invoice (the VAT picking up as appropriate), and I would write off any remaining lost balance.
In the absence of any invoice, I am suddenly confused... is VAT deemed as included on this "dividend"?
Can I throw something into the mix here? You mentioned the client was owed money from an insolvent debtor- did your client claim VAT bad debt relief on what he was owed? I assume the dividend has come from an Insolvency Practitioner (IP). It's a good while since I paid out dividends (I'm an insolvency man but work on a consultancy basis now and don't dirty my hands with administration anymore) but normally the IP will calculate the dividend (x pence in the pound obviously) net of VAT having assumed VAT bad debt relief has been claimed.
The transaction happened before I took over the bookkeeping but one of two things will have happened:
An invoice will have been issued and VAT paid over to HMRC. Following non-payment, this will then have been written off in Sage, by posting a sales credit (the net of which would go to bad debt and the VAT would be claimed back from the VAT man).
OR
A construction industry payment application will have been sent to the customer, and no self billing invoice will have come back. So, no invoice ever hit the accounts, and so there would be no need for a write off. No VAT paid over, no VAT claimed back.
Basically my client and the VAT man were back at NIL. I have no idea what has happened on the insolvent customers side. I assume they claim VAT that is within the payment going out??
I rang HMRC and asked if I should declare, as output tax, the VAT that would be within the amount received and they said yes. (well actually, at first, he said I had to send the whole lot to HMRC, and I questioned that, then he came back and said just VAT element.. they never let you speak directly to the technician, they just relay messages, its stupid!)
