I have a tricky situation with a local builders merchants and Im not sure the best way to go about entering it into Sage.
Basically we have 3 different scenarios.
1/The customer orders goods from the merchants through our account (its a trade only so it must go through an account), pays for it directly.
2/The customer orders goods, pays for some of them at the time, then at sometime in the future pays us directly for the remainder which we then have to pay to the wholesaler.
3/The customer orders goods, but doesnt pay anthing to the merchants. Instead once weve finished the job they pay us for the materials and the labour together.
Scenario 3 is how all our other bills occur; we usually buy the materials, do the work, bill for both, get paid for both. My issue is how to account for the first two scenarios where we are not receiving any money into our account from the customer, yet we are getting a VAT invoice on our account from the merchants!
In case it is of any use to help answer the question, all three scenarios will at some point include an invoice to the customer from us for the labour portion of the bill, so the customer will be on our system at some point, just sometimes not paying the materials part.
Should I be entering ALL of the VAT invoices from the merchants into our accounts, and then entering a dummy invoice into the accounts for the customer payment that went straight to them to balance them both out (thereby cancelling out the VAT element of both)? This seems the logical way of doing it, except if we ever have an inspection I dont want HMRC wondering why im raising invoices for customers but receiving no money from them!
I think you should enter all purchase invoices on as they are on your account like you say and then invoice the customer either as an internal dummy or sent to them (you can explain it's just to keep the books straight). I don't think HMRC will have a problem with this since you are declaring output tax and an inspector should see the explanation as reasonable. HMRC would be more bothered if you weren't vat registered and were looking for a way of artificially avoiding registration. For a definitive answer speak to HMRC and get their response in writing so you have proof in the event of an inspection.
I thought that would be the best way around it with the internal dummy invoice - i just wasnt sure about having invoices in my system and filing cabinet that dont actually correspond to an actual payment! Thinking about it HMRC shouldnt have an issue with it because without the dummy invoices id be claiming back the VAT from all of the invoices, but only paying for some of them! Its in HMRCs interest for me to input the dummy invoices so it cancels out the VAT on the paid invoice! I still think its worth getting it in writing from them just to be on the safe side.... Thanks again!
