Bookkeeping for a VAT refund

Bookkeeping for a VAT refund

Author
Discussion

essayer

Original Poster:

9,011 posts

193 months

Thursday 2nd October 2014
quotequote all
OH's business recently hit the VAT threshold and registered, and successfully claimed an amount of VAT against purchases made earlier in the FY and for earlier years

So now we have a sum of money in the account, but I'm not sure how to manage the bookkeeping for it.

Obviously we have a number of invoices/payments entered in this year before registration - which were originally entered without VAT, do I need to go back and adjust these to add in the tax?

What about the sums against prior years?

Normally I just rely on the bookkeeping package's built in VAT handling (we use Xero) so going 'off-piste' concerns me a bit smile

R1 Indy

4,381 posts

182 months

Thursday 2nd October 2014
quotequote all
I May be wrong here, but I did not think you were allowed to claim the Vat back on purchases made before becoming Vat registered??

essayer

Original Poster:

9,011 posts

193 months

Thursday 2nd October 2014
quotequote all
R1 Indy said:
I May be wrong here, but I did not think you were allowed to claim the Vat back on purchases made before becoming Vat registered??
Prior 6 months for services and 4 years for goods -
http://www.hmrc.gov.uk/vat/start/register/purchase...

Eric Mc

121,779 posts

264 months

Thursday 2nd October 2014
quotequote all
R1 Indy said:
I May be wrong here, but I did not think you were allowed to claim the Vat back on purchases made before becoming Vat registered??
You are wrong. You can reclaim VAT on items purchased before VAT registration (indeed, before trading commenced) but not on EVERYTHING that was purchased before these dates. You have to be mindful of the restrictions which will be set out in the VAT guidelines.

Regarding accounting for late claimed Input VAT, yes, you should, in theory, adjust the original cost amount to reflect the amount of VAT that was reclaimed on the item.

Say you originally bought a van for £10,000 plus VAT. For a non-VAT registered business this would result in a fixed asset cost in the business balance sheet of £12,000. Depreciation and the Capital Allowance claim would be based on this £12,000 amount.
If the trader was VAT registered then the asset cost would only be £10,000, and the Depreciation and Capital Allowance claim would be based on £10,000.

If the business registers for VAT at a later date after the original accounting for the van purchase of £10,000 plus VAT, then the original figures will need to be amended and the depreciation and Capital Allowance claims adjusted.

trickywoo

11,705 posts

229 months

Thursday 2nd October 2014
quotequote all
Perhaps I'm reading OP wrong but it sounds like they have claimed VAT paid on purchases back but not actually paid any VAT on sales.

How does that work?

Eric Mc

121,779 posts

264 months

Thursday 2nd October 2014
quotequote all
trickywoo said:
Perhaps I'm reading OP wrong but it sounds like they have claimed VAT paid on purchases back but not actually paid any VAT on sales.

How does that work?
It shouldn't.

If you have bought and sold items BEFORE you registered for VAT, you cannot reclaim the VAT on the purchase price.

If you bought items which were still in stock at the time you registered for VAT, you will have to charge VAT when you sell them, which means you can RECLAIM the Input VAT on the original cost.

If you bought fixed assets which are still in use at the time the business registers for VAT, you can back claim for the Input VAT on those assets. Although you will need to charge Output VAT when you sell them later.

essayer

Original Poster:

9,011 posts

193 months

Thursday 2nd October 2014
quotequote all
Most of the company's sales are zero rated anyway.

Eric Mc

121,779 posts

264 months

Thursday 2nd October 2014
quotequote all
Be sure they are "Zero Rated" and not "Exempt" or "Outside the Scope".

essayer

Original Poster:

9,011 posts

193 months

Thursday 2nd October 2014
quotequote all
Yes, that caused me some concern for a while, goods exported outside EU so definitely zero rated, but many rules and regs surrounding it we need to comply with (VAT notice 703 etc).

Alpinestars

13,954 posts

243 months

Thursday 2nd October 2014
quotequote all
I think your question is an accounting question? If you've recovered input VAT, your journal entries should be Dr cash, Cr expenses/purchases. It will effectively increase your profits. You only need to adjust expenses/purchases to the extent you originally booked them gross (including vat) and have now recovered the vat.