Our company bought a new van on finance last week. However, the finance was not in place at the time of collection and so we paid for the van in full at the time by debit card and finance was to be sorted asap (I know this kind of defeats the purpose of finance..) So I have since have a full refund for the van in the bank and the finance company are yet to take a deposit and start taking monthly payments. My questions are this:
1) My year end was 30.09.2015 and the refund went in a few days before this so I need to show the refund against the purchase and so cannot use this van in the balance sheet..OR perhaps I can show the refund in the suspense account? OR should I refund the whole amount to a hire purchase nominal code? I have currently put the van in as vehicles (0050?) but perhaps there is a HP NC - should I transfer this? If I do this, I'll still be at zero after refunding it!
2) I was told I could reclaim the VAT back in full but how can I do this when I need to add the full refund in to allow me to reconcile my bank?
Sorry for any confusion - I am self taught and still learning every day. Thanks in advance.
You took delivery of the van in the last company year so you recognise an asset and a liability.
The payment was a null transaction that should never have happened and to include it in the accounts would not show a true and fair view (its actually something that HMRC look out for where a transaction happens just before year end then is unwound directly afterwards).
The VAT is surely taken against the delivery of the asset when the risk and reward of ownership was transferred, not when the payment was made for it.
In the current period the liability becomes a finance company debt (so still a liability but just moved slightly).
Thats what should happen on the balance sheet.
From the software perspective I would match the payment and refund as a null transaction effectively ignoring it as thats the bit thats giving you hassel (I don't use Sage but think that it should be quite straight forwards to work out when you think about it from the perspective of what you want the balance sheet to look like).
HTH,
Shaun.
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Shaun
Responses are not meant as a substitute for professional advice. Answers are intended as outline only the advice of a qualified professional with access to all relevant information should be sought before acting on any response given.
Here's what I am seeing from your post... lets say the van was £1000 + 200 VAT
You created a supplier invoice for the van... net of £1000 to 0050, and VAT of £200 picked up on the return (the 0050 code suggests you are using Sage - is that correct?)
You then paid off the supplier invoice, from the credit card account, and everything was fine.
Are you on cash accounting for VAT, or standard basis?
If you post a supplier refund (if your sage can do this, it will be via the supplier page), this will give you the appropriate income transaction on your credit card account, and, it will reinstate the amount outstanding to the van supplier.
If you are on cash accounting, this might affect your VAT return, as you will have to post a T1 refund.
If you are on standard accounting, it makes no difference, as the refund would be T9
For simplicity, I would just leave the supplier balance as part of trade creditors. This will give you a liability on the balance sheet, its just in trade creditors, rather than HP. If you are micro entity I don't see any harm in doing it this way.
If the HP agreement is dated within September, you might wish to instead show that on the balance sheet, rather than a trade creditor, and there a couple of ways to do this... let me know what you think so far. If you want to go the HP route, instead of leaving it as trade creditors, give me the details in full... van net, VAT, RFL, HP advance, HP fees, Interest of ? to be charged over how many months? That will make it easier for me to give you a complete answer.
Agreed, Phil. Had the refund been given after 30.09.15, and the HP agreement dated after too, I don't think it would be fair to show no liability on the 30.09.15. I believe there should a an asset and a liability.
If Jane leaves a trade creditor, the accountant can do a journal for the statements, within the accounts production software. Jane's suggested approach seems to focus on removing the asset, but this wouldn't happen if a supplier refund was posted, it would simply re-instate the creditor, and give a liability on the balance sheet, whilst also correcting her bank.
If Jane wants to process the HP element, it may be a simple "pay of the newly restated supplier balance using a dummy bank account, then journal this balance to the HP account"... but I'd like to review what's on the HP agreement, so I can check if she needs to pick up HP fees etc.
If she wants to process everything into Sage as it will appear on the accounts, she will need to consider under and over one year. I would be inclined to use rule of 78 in calculating the interest, rather than straight line basis, as this gains higher tax relief in the early years, and is a more realistic picture. That will affect the under and over one year figures. Not sure how much knowledge she has on this, so was going to give her a run down of it, which will be easier with the actual figures.
If the HP agreement is dated October, I personally wouldn't have an issue leaving a trade creditor, as we still have the asset and liability, and technically no loan was in existence at the balance sheet date, only a liability. Would you feel that there would be a need to show under and over one year representations, despite this? Its not something I've ever had to do, as normally the HP agreement has been dated just before the year end, so had to go in.
Responses are not meant as a substitute for professional advice. Answers are intended as outline only the advice of a qualified professional with access to all relevant information should be sought before acting on any response given.
You reply wasn't Sage specific, so I offered one. You also said:
In the current period the liability becomes a finance company debt (so still a liability but just moved slightly).
Now if the HP agreement was dated in October, I would do what you have said, leaving a trade creditor, and include HP in the current year, not the year to 30.09.15. I was asking Phil if his post was geared towards recognising the HP agreement within the 30.09.15 year, even if it was dated October. I am interested to hear his thoughts, as I may have misunderstood his point.
If the HP agreement was pre 30.09.15, I would bring it in the previous year, because it existed at that date.
