A challenging issue for me....

A challenging issue for me....

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I should be grateful for some thoughts on the following scenario:

Company A deals with finding accommodation for assylum seekers (hereafter referred to as service users) throughout UK

My Client (estate agent) provides Company A the properties to house these service users. The property has to meet the quality and safety standards set by Company A.

Under the arrangement My Client has to pay all the outgoings up front, such as the monthly rentals to the landlords, items like bedsheets, duvets, furniture etc.

Company A pays My Client £10 per night per service user. These payments are made two months in arrears. The following example would make this clear:

Example

My Client finds a property on the 1/10/11 and houses 5 people in it at £10 per person per night.

On the 1/10/11 My Client also buys furnishings worth £200 

On 28/10/11 My Client pays the Rent to the owner of the property £800

So at the end of October the total cost incurred by My Client is £1000.

On 31/12/11 (after 2 months) Company A pays My Client £1,550 (5 x £10 x 31 nights).

Thus my client's profit for October is £550.

My Client is Vat registered and the Year end is 30/11/11

I would welcome readers' thoughts on how to account for the above example as at the Year end, and also the vat implication of the money paid by Company A to My Client. 

My thoughts are as follows:

As at 30/11/11 My Client would recognise income of £1550 (Dr Debtors, Cr Income). The Costs of £1000 would be matched against this, leaving a Profit of £550 in the accounts as at 30/11/11. 

I am however not sure of the VAT implication. Should Output Vat be accounted for on £1550 to be paid by Company A on 31/12/11?

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By edward33
09th Jan 2012 17:35

please clarify

You are talking about 2 months but the period referred to is 3 months.

Assuming you mean that business started on 1 October he has 2 months income to 30 November 2011.

1 Debit Debtors Control £3,050 Credit Sales £3,050 (only 30 days in November) 

2 Debit Bank £1,550 Cr debtors control £1,550.  (Oct money received in November)

3 Debit payment to Landlord £1,600 Cr Putchase Control £1,600

4 Dr Purchase control £800 Cr Bank £800 (1 payment of £800)

Dr furnishings £200 Cr Bank £200. treated as Capital item.

 Summary   Income          £3,050

                    To landlord   £1,600

                     Profit                    £1,450

                     Debtor £1,500

                    Furniture £200

                   Bank       £550

                    Creditor                   £800

                                 £2,250      £2,250

The rental income (provided no other services are being supplied) will be exempt . A partial exemption Calculation may be required. VAT will not be payable on £800 payments to landlords   

 

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