I am doing the bookkeeping for a company and was advised by their accountant that the way the import VAT on purchases was being recorded in the accounts was incorrect. It was being recorded as follows (Sage Instant):
T1 tax code Zero in Net and whole VAT Paid to HMRC amount in the VAT column (from invoice and C79 form); this way would include the import VAT in with purchases for the VAT return.
The accountant told me in September this was incorrect and that the VAT should be placed into the net amount and not reclaimed, so stupidly I followed the directions I was given even though I had a gut feeling he was wrong..... well we are now approaching YE in September and the director has noticed this and understandably questioned why it has been done this was losing an ability to claim back the VAT. The accountant has been in and I'm sure he will not take responsibility for it so I'm going to have to put this down to a mistake to learn from and triple check anything he tells me ever again.
Now the problem, how do I rectify the VAT in order to claim the Import VAT back? can I just amend the software and correct it via the next VAT return submission or do I need to contact HMRC to explain the issue? I understand I have made the error by surely there is a way to fix this?
Hi Paul Im probably being a bit thick, but when you say VAT from the invoice and C79 - what do you mean by invoice? Im assuming you are not working anything out on the 'commercial invoices' which come with shipments from abroad, but instead the shipping company invoices and are you ticking these off to the C79 where imports have come in my sea/air freight. Or do you also have invoices from the likes of UPS/Royal Mail/Fedex for smaller postal imports?
(Im assuming the VAT Paid to HMRC is a typo. Also assuming no dury deferment process in place and that you pay the VAT on goods immediately arriving in the UK)
Also - has the Accountant just left you to sort out this, with no guidance? Strange! When the Accountant suggested the VAT should not be reclaimed in the way you were doing, Im wondering if that he meant you shouldnt claim on receipt of the invoices, only from the C79, because that is the only document that gives you the right to reclaim (unless its a postal invoice from an agreed list) but also if not done from the C79 can skew the dates of the VAT reclaim so it may not appear in the correct VAT period.
Also - were you claiming JUST the import VAT back, or import duty as well?
So if you can clarify the above, also that you have NOT claimed any C79 VAT on any import purchases since he said what he did.
Can you then provide a screen shot of an example keyed in sage from the audit trail? One pre change and one after your chat? Im not sure how you were keying them afterwards.
Also - before you do - check out the HMRC guidance on correcting VAT return errors. It all depends on the quantum involved - not something you have mentioned so we cannot answer that one at the mo.
__________________
Joanne
Winner of Bookkeeper of the Year 2015, 2016 & 2017
Thoughts are my own/not to be regarded as official advice,which should be sought from a suitably qualified Accountant.
You should check out answers with reference to the legal position
It depends how much the total of the error comes out to - I believe the "limit" at the moment is £10,000 as long as it's not more than 1% of Box 6 in the period(s) of the adjustment (see www.gov.uk/vat-corrections/adjustments).
If it's more than either of these, you'll need to use a VAT652 form to let HMRC know what's happened. They will then adjust the figures and respond to confirm what they've done, along with any interest payable.
If the total of the error is less than the limits above you can still use a VAT652 form for full disclosure, but you are also allowed to simply adjust on the next VAT return.
Amending the transactions within Sage will be fine if this is the case, because the differences will be automatically picked up on the next return.
If the adjustment results in a refund due for the period in which it's declared then it's probably a good idea to let HMRC know anyway, because if your client isn't a business that normally gets refunds it's very likely to flag up for a compliance check. If there is something on record to explain the odd looking figure they're less likely to need more information about it.
One other thing I would say is make sure that it's definitely import VAT that's being claimed and not import DUTY, which is a very common error!
Hope this helps.
(This is obviously all on the assumption that the VAT figures definitely do need amending and that the accountant gave you incorrect advice...!)
-- Edited by fin6y on Tuesday 20th of June 2017 03:55:28 PM
We receive an invoice from the shipping company for "VAT Paid to HMRC" which they require payment for prior to releasing the goods, these invoices show only net cost and no VAT on the invoice breakdown, we then receive a C79 certificate from HMRC which totals the same as the invoice. The shipping company invoices were entered into Sage Instant as a T1 code but with no net value, only the corresponding VAT amount in the VAT box (this was the old way the accountant said was incorrect).
To be fair he seemed a little confused when I handed him the C79 certificate and questioned him on it so he has gone away to have a look, I think he will come back and give me some guidance on this issue tomorrow but since he has landed me in something deep due to his last decision I want to get guidance from other places in addition to him to make sure I am doing things correctly. I've learnt my lesson from this one, NEVER trust what anyone says without further research first.
Some invoices do contain import duty but that has not been an issue as it is only the VAT elements that are being looked into and I can confirm since September 2016 no VAT has been reclaimed for the value of the C79 certificates we have received.
I would say the error will be above 1% of box 6 in the next quarter and will result in a rebate for the company so should I preemptively complete a VAT652 form?
Sorry if this doesn't make a lot of sense, trying to get my head round all this before he comes back tomorrow.
I believe the "limit" at the moment is £10,000 as long as it's not more than 1% of Box 6 in the period(s) of the adjustment (see www.gov.uk/vat-corrections/adjustments).
Thanks for adding the link Faye - I couldnt, in truth, be bothered digging it out! Enjoying the heat far too much.
Just to confirm to anyone reading the adjustment can be completed on the current VAT return providing:
the net value of errors found on previous returns does not exceed £10,000
the net value of errors found on previous returns is between £10,000 and £50,000 but does not exceed 1% of the box 6 (net outputs) VAT return declaration due for the return period in which the errors are discovered
A bit more guidance in VAT notice 700/45 or of course in the manuals/VAT act.
__________________
Joanne
Winner of Bookkeeper of the Year 2015, 2016 & 2017
Thoughts are my own/not to be regarded as official advice,which should be sought from a suitably qualified Accountant.
You should check out answers with reference to the legal position
We receive an invoice from the shipping company for "VAT Paid to HMRC" which they require payment for prior to releasing the goods, these invoices show only net cost and no VAT on the invoice breakdown, we then receive a C79 certificate from HMRC which totals the same as the invoice. The shipping company invoices were entered into Sage Instant as a T1 code but with no net value, only the corresponding VAT amount in the VAT box (this was the old way the accountant said was incorrect).
To be fair he seemed a little confused when I handed him the C79 certificate and questioned him on it so he has gone away to have a look, I think he will come back and give me some guidance on this issue tomorrow but since he has landed me in something deep due to his last decision I want to get guidance from other places in addition to him to make sure I am doing things correctly. I've learnt my lesson from this one, NEVER trust what anyone says without further research first.
Some invoices do contain import duty but that has not been an issue as it is only the VAT elements that are being looked into and I can confirm since September 2016 no VAT has been reclaimed for the value of the C79 certificates we have received.
I would say the error will be above 1% of box 6 in the next quarter and will result in a rebate for the company so should I preemptively complete a VAT652 form?
Sorry if this doesn't make a lot of sense, trying to get my head round all this before he comes back tomorrow.
Thanks
The Accountant is correct in that the VAT should not be reclaimed from the shipping company invoices, but only from the C79s, as I indicated before (unless they are on the approved list for small postal trans when the amounts would never appear on your C79). Some folk do not wait for the C79 to arrive, which can land you in a whole pile of trouble when HMRC are on the look out for such. So - always wait for the C79, and check it off to those supplier invoices. Then if you are missing some you can chase the shipping companies. Some use their own VAT number so that will never appear on a C79 and some use the FAS process (I wont mention further as your company clearly doesnt use them, just ones to watch out for if info is missing from a C79)
Im rather concerned though that the invoices you were processing the import VAT from in the first instance do only seem to contain a call for 'VAT paid to HMRC'. In a million years of dealing with imports (ok, maybe not that long), I have never come across such a thing, only invoices where the invoice is broken down into VAT, import duty and then between one and a whole raft of other charges that the shipping company will make for provision of their services, depending on which shipping company it is. Now these admin type charges attract VAT so you can process that part of the invoice in the usual way. BUT the issue is, as far as I can tell, that the lump sum on the invoice will not just be VAT, but be import duty as well, which as Faye rightly stated you cannot claim back. Would like some further clarification of that.
I didnt get a screen shot as requested, nor have you advised how the subsequent invoices were keyed in sage once you were not using them to reclaim the VAT. (T codes, nominals etc). But can you please advise which shipping company you use/add a screen shot of one of their invoices (with business names etc blacked out as appropriate).
Also - as part of the import process you really should get copies of the C88s to match to the shipping invoices - these will also show the split in VAT/Duty and should be maintained with your usual paperwork packs
I wouldnt be doing ANYTHING before the Accountant comes in tomorrow. It can wait one day, then I suggest you go through this together and get him to view the VAT form before it goes off (its done online), but he will need to make some adjustments in sage also. Im assuming this is all within the same financial year for your boss?
__________________
Joanne
Winner of Bookkeeper of the Year 2015, 2016 & 2017
Thoughts are my own/not to be regarded as official advice,which should be sought from a suitably qualified Accountant.
You should check out answers with reference to the legal position
Sorry I am not comfortable taking screenshots as these accounts belong to the company I work for and while they may see the benefit in sharing them to resolve this issue it is not a subject I wish to discuss at this moment in time, however my boss seems impressed that once the issue was discovered you have been very helpful in your responses so it may be possible at a later date.
I should have mentioned that we receive two invoices from the shipping company for each shipment, one for their costs including import duty and one for the VAT Paid to HMRC the only difference is the VAT Paid to HMRC invoices have an extra 2 digits on the end of the invoice number (same number though).
The shipping company is JAG UFS and afterwards the 'VAT Paid to HMRC' element was put through as a T9 code with nothing in the VAT box for the transaction, I understand this was an error and I should've questioned it earlier but only being in this industry for a few years I thought I could trust someone with many more years experience without researching further.
I have never been given any C88 forms, who would supply these so I can chase for them going forward and what information do they contain?
I will not be changing anything in the accounts until I have discussed the issue and possible resolutions with the accountant and the owner but there is some time before the next VAT return is due for submission anyway, also yes all these errors and corrections are within the same financial year.
The main reason for me asking on here is that I want to know the views of people like yourself so I can call the accountant on anything I do not feel is correct when trying to correct this as I have been informed by another director that this accountant has done similar things to this before, such as giving the wrong advice to previous accounts staff and then tried to charge to correct the mistake.
Again thank you for help with this, can I please confirm the correct procedure for these invoices going forward would be along the lines of:
Check C79 against invoice from shipping company then enter VAT to HMRC figure as a T1 code with zero net and whole VAT amount in VAT box
Lastly as the C79 certificate is the proof required for a rebate should I set up a supplier account for HMRC to post these transactions to?
Just a quick extra note to add to the conversation while I'm sweltering on a hot bus!!! I previously have (and still am, in all honesty) been very strict about getting C79 certificates due to HMRCs guidance essentially implying that nothing else will be accepted as evidence for input VAT. However, earlier this year a very big client of mine that imports the majority of their stock had a compliance check carried out by a "senior" VAT officer. They had a couple of missing C79s over the year and while initially the officer said nope absolutely can't claim VAT from the invoices themselves, they then took a huge stack of them away with them to research it further and instead concluded that actually the invoices from the freight company were acceptable for input VAT recovery! The mind boggles.
Sorry I am not comfortable taking screenshots as these accounts belong to the company I work for Perfectly understand that such is sensitive information, which is why I suggested the sensitive stuff be redacted. Just for future - you can do this via using print screen and then paint net to get rid of the business name and anything else that you dont wish the forum to see, then we are just looking at the numbers and the rest of the raw data. Often easier to do it this way, depending on what the question is. Besides if you tried to post anything at all with company/identifiable names then Shaun would be on it like a whippet up a drain pipe and you would have slapped hands and while they may see the benefit in sharing them to resolve this issue it is not a subject I wish to discuss at this moment in time, however my boss seems impressed that once the issue was discovered you have been very helpful in your responses I will send you my bill so it may be possible at a later date.
I should have mentioned that we receive two invoices from the shipping company for each shipment, one for their costs including import duty and one for the VAT Paid to HMRC the only difference is the VAT Paid to HMRC invoices have an extra 2 digits on the end of the invoice number (same number though). Ok that makes sense and why I asked in part which company it was. One way or another I will get the info/make you talk!
The shipping company is JAG UFS and afterwards the 'VAT Paid to HMRC' element was put through as a T9 code with nothing in the VAT box for the transaction, This is the actually the correct way to process such invoices. Yes - T9 them!! Also T9 the import invoice and as I say only T1 the other invoice for the items which carry VAT. This means that no VAT is reclaimed from these invoices, but the correct amount sits in the debtors account for you to link the payment in due course. I understand this was an error and I should've questioned it earlier but only being in this industry for a few years I thought I could trust someone with many more years experience without researching further.
I have never been given any C88 forms, who would supply these so I can chase for them going forward and what information do they contain? Normally a shipper will copy these forms to the business to check, so if you have an import clerk it may well be that they get them. With my smaller clients I always keep such paperwork together with the Accounting documentation and it is another useful tool to check I get all the paperwork, given it comes in from various directions in the import process. If the company do not get them, you can ask the shipper, but I would be surprised if they didnt as they contain lots of crucial information/declare what is actually arriving. Also known as SAD (Single Administrative Document)
I will not be changing anything in the accounts until I have discussed the issue and possible resolutions with the accountant and the owner but there is some time before the next VAT return is due for submission anyway, also yes all these errors and corrections are within the same financial year.
The main reason for me asking on here is that I want to know the views of people like yourself so I can call the accountant on anything I do not feel is correct (I always say dont be afraid to ask the Accountant if you are not sure of anything anyway! But also remember that a lot of folk just answer the basic question asked, rather than delve to find if there is anything else/what shouldve been asked, if that makes sense! Out of interest what qual/prof body does he belong to? You dont have to say if you dont want!) when trying to correct this as I have been informed by another director that this accountant has done similar things to this before, such as giving the wrong advice to previous accounts staff and then tried to charge to correct the mistake. (Get it in writing, via email!!)
Again thank you for help with this, can I please confirm the correct procedure for these invoices going forward would be along the lines of: Check C79 against invoice from shipping company then enter VAT to HMRC figure as a T1 code with zero net and whole VAT amount in VAT box
As I mentioned above - shipping company invoice for VAT - T9 to your import VAT nominal (I use 5103). Only claim the VAT refund from the C79. The shipping company might issue invoice in one VAT quarter and the C79 might arrive in the next, but the C79 is your authority to reclaim so only ever use this to avoid potential fines/penalties in the event of an inspection. See below
Lastly as the C79 certificate is the proof required for a rebate should I set up a supplier account for HMRC to post these transactions to?
On receipt of C79, use date on the doc then process via a journal - take CARE re the T codes.
DR Purchase tax control account (n/c 2201) T1
CR Import VAT n/c 5103 T9
Once you have keyed the C79, the nominal code in theory reverts to nil, although if you have a lot of entries it will just contain the next batch.
Once you run your VAT return, the T1 will collect the item from the Purchase tax control a/c. If you fail to use that T1, it will leave it lurking!!
Try the two journal entries in the practice module and run your VAT.
HTH
Thanks
Edited to add the pink back to some that the system removed as I posted!
-- Edited by Cheshire on Tuesday 20th of June 2017 07:47:06 PM
__________________
Joanne
Winner of Bookkeeper of the Year 2015, 2016 & 2017
Thoughts are my own/not to be regarded as official advice,which should be sought from a suitably qualified Accountant.
You should check out answers with reference to the legal position
Just a quick extra note to add to the conversation while I'm sweltering on a hot bus!!! I previously have (and still am, in all honesty) been very strict about getting C79 certificates due to HMRCs guidance essentially implying that nothing else will be accepted as evidence for input VAT. However, earlier this year a very big client of mine that imports the majority of their stock had a compliance check carried out by a "senior" VAT officer. They had a couple of missing C79s over the year and while initially the officer said nope absolutely can't claim VAT from the invoices themselves, they then took a huge stack of them away with them to research it further and instead concluded that actually the invoices from the freight company were acceptable for input VAT recovery! The mind boggles.
Ive had similar before, both ways! Depends on what side of the bed the VAT inspector gets out of and sometimes if they can see that you have good processes they will let it fly, but its certainly not what their rules say. Ive had it where a figure didnt arrive on a C79, due to various errors not of my clients making and they allowed it given it was a huge stack holding up cashflow. HMRC can be ok but up to your client, Paul, if they think its worth running that gauntlet. Im stict like you Faye! Not the there or there abouts brigade here
Hope you get off that sweaty bus soon - are they like trains and have the heating on in the summer and none in the winter? You will have to get on the wine when you get home!!
__________________
Joanne
Winner of Bookkeeper of the Year 2015, 2016 & 2017
Thoughts are my own/not to be regarded as official advice,which should be sought from a suitably qualified Accountant.
You should check out answers with reference to the legal position
Thank you both, I cannot remember the nominals off the top of my head but I will be checking everything over in the morning prior to the accountant coming in.
In order to rectify the issue at the moment am I right in thinking if I remove the original wrong invoices off the system and re-input them using the correct method the next VAT return calculation on Sage Instant should work out the correct figure as long as I calculate the entire financial year up to that point?
Also I am pretty sure this will lead to a rebate calculation on the next VAT return which will be higher than 1% of the box 6 figure but not in excess of £10,000, I will need to complete the VAT652 form and send it to HMRC? if so when should this be done? as soon as possible once I have calculated the correct figures or wait until nearer the next VAT return? (Guessing I know the answer to that one but just checking )
fin6y - I've heard similar things from other people where it comes to HMRC inspections that sometimes the mood of the inspector changes how flexible they can be but I think your approach of better safe than sorry is the wisest choice.
Joanne - As for the accountants qualifications I'm not sure what he holds personally but he has been used by the company for some years so I do not think anything I say would change their views of him and its probably left alone if I'm honest, also he's a very old school accountant that still uses paper copies of everything, getting him to put advise in an email isn't likely.
General rule in sage - if an item has been bank or VAT reconciled then do not amend or delete them, suggest dummy credit notes/invoices as appropriate. Although I would suggest from the way you have described it that the items may well be on your earlier VAt returns anyway - check via audit trail/detailed vat return or corrections screen. If so leave and just do the journals for the C79s not yet reclaimed.
Note - when you do a VAT return, always use the VAt quarter dates. Sage will ask if you want to include earlier unreconciled trans. Generally the answer to that is yes (every vat return), unless there have been some 'issues' in earlier sage trans that you dont want to pull forward/cannot have in teh VAT return for some reason (eg keying pre VAT registration items as T1 instead of T9).
Cheshire wrote: Hope you get off that sweaty bus soon - are they like trains and have the heating on in the summer and none in the winter? You will have to get on the wine when you get home!!
The buses here seem to have the heating on all year round! It's been especially unbearable on the way home lately because it takes almost an hour and in rush hour traffic no breeze gets through the windows . Forget the wine, I've resorted to freezable cocktails :D
Paul - is Sage set up on invoice or cash accounting? If invoice accounting I would probably post credit notes with the exact same nominal code and net/VAT information on as the original incorrect invoices, and then post the actual correct invoices. This will give an audit trail for the corrections should anyone query it, and will also show neatly on the VAT return (as in, there will be clear credit notes to cancel the original error along with the correct invoices rather than a bunch of "cancelled" transactions which can look messy).
If you need to send in a VAT652 which, by the sound of it, you don't NEED to but it would be a good idea as you mentioned there may now be a rebate due, then this should be done as soon as possible after you know the full value of the error. There is a box on the form which can be ticked to indicate that it's already been / will be corrected on a VAT return by yourself.
)
