Sage & Vehicle Contract Hire

[arcturus]

Have a nice new Land Rover on a contract hire through the business. Because it is available for personal use, I can only claim half the VAT back.

The lease company sends me a standard VAT invoice each month, but how do i enter it in sage so that the system only reclaims half the VAT. I am sure there are going to be journal entries involved, but i can't figure it out!! Any one any ideas?

[Eric Mc]

As you no doubt know, Sage expects you to put in a VAT Code to reflect the rate of VAT applying to the item. T1 is usually 17.5%, T0 is Zero Rated, T9 is Exempt etc.
However, the Input VAT calculated automatically by the system can be overwritten by the person entering the data. When you are entering the monthly leasing invoice, all you have to do is click in the VAT box and manually enter the correct VAT amount you will be claiming back.

Alternatively, you can create a bespoke VAT Code which will allow the system to automatically calculate the VAT at 8.75% (1/2 of 17.5%). Sage has a number of spare "T" codes available for just this purpose.

[arcturus]

Eric, thank you. Does it not matter that the full amount of VAT actually charged will not be shown in the system? eg if the invoice is for £100 plus £17.50 VAT and I enter £100 plus £8.75 VAT, the invoice total in sage will now not be the same as the paper invoice.

Or do i enter £108.75 plus £8.75 VAT? Or do I let the Sage input remain different to the paper invoice?

[smartie]

arcturus said:

Eric, thank you. Does it not matter that the full amount of VAT actually charged will not be shown in the system? eg if the invoice is for £100 plus £17.50 VAT and I enter £100 plus £8.75 VAT, the invoice total in sage will now not be the same as the paper invoice.

Or do i enter £108.75 plus £8.75 VAT? Or do I let the Sage input remain different to the paper invoice?

You do tge last one - £108.75 plus £8.75 VAT.

If you enter the invoice as normal in full then sage would include the whole amount of input tax in it's VAT calculations.

[arcturus]

Interesting. Having thought about it for a few minutes I was going to go for £100 plus £8.75 and let Sage differ from the paper invoice.

My logic was that the net value needs to remain at £100 so that the ledgers are correct when my accountant comes to do his end of year wizardry. And since the VAT element is only used in the VAT calculations and not for anything to do with P&L or anything else then it doesn't matter if it is different to the paper invoice.

Edited by arcturus on Thursday 1st November 09:57

[Eric Mc]

NO.

The correct Leasing Cost as far as the company is concerned would be £108.75. As you are only claiming back £8.75 instead of £117.50, the true monthly leasing cost for the asset is £108.75 and this what should be charged to the "Leasing Costs" heading in the Profit and Loss account.
The fact that the VAT Exclusive charge showing on the original invoice is £100.00 is irrelevant.

The full double entry is therefore

DR - Leasing Costs in the Profit and Loss Account - £108.75
DR - Input VAT Reclaim £8.75
CR - the Leasing company's Supplier Account - £117.50

[arcturus]

Thanks guys, for the answers and explanations. I understand now. I'll stick to the IT - it is soooo much easier!!!

[skwdenyer]

Eric Mc said:

NO.

The correct Leasing Cost as far as the company is concerned would be £108.75. As you are only claiming back £8.75 instead of £117.50, the true monthly leasing cost for the asset is £108.75 and this what should be charged to the "Leasing Costs" heading in the Profit and Loss account.
The fact that the VAT Exclusive charge showing on the original invoice is £100.00 is irrelevant.

The full double entry is therefore

DR - Leasing Costs in the Profit and Loss Account - £108.75
DR - Input VAT Reclaim £8.75
CR - the Leasing company's Supplier Account - £117.50

Alternatively, if you want to make your P&L reflective of reality, could you not simply assign £100 to the leasing cost and £8.75 to your taxation nominal a/c, since that is tax you have paid? Principally has an effect of altering the pre-tax profit ratio a tiny bit :-)

[Eric Mc]

The REAL leasing cost is £108.75. As the full VAT inclusive bill is £117.50 but the business is only allowed to reclaim £8.75 of the VAT element, then the true cost of hiring the vehicle is £108.75 and THAT is what needs to be shown in the Profit and Loss account.
If a hybrid entry of £100.00 is allocated to the P & L and only £8.75 to the Purchase VAT account, what is going to happen to the remaining £8.75 VAT? It has to go somewhere.

[skwdenyer]

Eric Mc said:

The REAL leasing cost is £108.75. As the full VAT inclusive bill is £117.50 but the business is only allowed to reclaim £8.75 of the VAT element, then the true cost of hiring the vehicle is £108.75 and THAT is what needs to be shown in the Profit and Loss account.
If a hybrid entry of £100.00 is allocated to the P & L and only £8.75 to the Purchase VAT account, what is going to happen to the remaining £8.75 VAT? It has to go somewhere.

If you were replying to me, I was suggesting that the costs were in fact:

£100 for leasing (posted to the appropriate nominal account)
£8.75 in unreclaimable VAT (posted to an unreclaimable VAT nominal)
£8.75 in reclaimable VAT (posted to the normal VAT nominal)

I would argue that the £8.75 in unreclaimable VAT is taxation and therefore ought to be accounted for differently in detailed accounts. This is relevant if you want to be able to make meaningful comparisons between different leasing plans for different circumstances. It is also relevant if the tax treatment of car leasing were to change for corporation tax purposes in the future.

However I also take the point that it is important to ensure that the postings don't take the unreclaimable element away from the P&L.