Accounting implications of VAT registration

Accounting implications of VAT registration

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I have a client with a 30 Nov year end who registered for VAT on 1 Dec.  On the first VAT return there will be reclaims for pre registration VAT on fixed assets, stock and services.

I'm a little unsure how to treat this.  I'm happy that the 30 Nov accounts shouldn't be adjusted and so the fixed assets, stock and P&L items should be included including the VAT.  Having read the FRSSE and FRS 21 this doesn't look like an adjusting event to me.

So, on 1 Dec I need to process the VAT reclaim through the accounts.  Stock is easy enough.  Simply Cr stock, Dr VAT recoverable.  Do I adjust the opening stock value in cost of sales though?  I'm assuming not.

With regard to fixed assets, again the opening entry is easy enough - Dr VAT recoverable, Cr Fixed Assets.  With regard to depreciation I am not intending to go back and re-work prior year depreciation, simply depreciate the 'new' cost over the remaining useful life.  How is this shown in the fixed assets note in the final accounts though?  It's clearly not a disposal.  Do I add in an extra line in the note so it reads cost b/f, additions, disposals, reduction in cost due to VAT recovery, cost c/f?

Finally with regard to VAT on services ordinarily I'd simply book the adjustment Cr Accountancy fees (for example), Dr VAT recoverable.  Is this still the way to do it or should I be adjusting reserves given that the adjustment relates to prior year fees?  I can't believe the latter is the right way.

Any pointers would be much appreciated

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Euan's picture
By Euan MacLennan
12th Jan 2013 16:50

Not an adjusting post-balance sheet event

... so I agree that the accounts to 30 Nov should not include any adjustment for VAT.

With regard to stock, it depends on how you do your book-keeping.  The opening stock for the next year's accounts will be the stock at 30 Nov including VAT.  I would post the VAT element to the credit of purchases.

I would re-calculate the depreciation brought forward onto the reduced cost and in the interest of full disclosure, I would put an extra two lines in the fixed asset note for "Adjustments" on both cost and depreciation.  This will generate a credit to the depreciation charge for the next year.  I would explain the "adjustment" in a footnote.

Presumably, the only relevant services will be accruals such as the accountancy fees.  Yes - I would credit the VAT on the fees for the 30 Nov accounts to accountancy fees in next year's accounts.  You should certainly not adjust reserves.

Don't forget to amend your accounting policy on recognition of turnover in next year's accounts to refer to VAT.

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By Liz Edwards
14th Nov 2017 14:25

Oops! Sorry!

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Replying to Liz Edwards:
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By Bobbo
14th Nov 2017 13:55

I suggest you post this as a new question. Resurrection of threads the best part of 5 years old tends to be frowned upon by regular contributors.

P.s. have a think about it- your client can reclaim 1/6th of pre-registration expenses but then has to pay CT of 19% of that amount, the benefit looks to be in that other 81%.

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Replying to Bobbo:
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By Liz Edwards
14th Nov 2017 14:25

Thanks so much Bobbo. I couldn't see the wood for the trees!!! Have deleted original comment

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