Accounting for VAT Re-payment - Stock On Hand at Registration

Posted by ElectricAngel PM | on Sun, 29/01/2012 - 23:15 409 2 comments | report

Hi,

I recently had some issues with my accountant (errors made and deadlines missed etc) so have been left with no choice but to complete our Partnership Tax Return this year. It's not the first time i've completed a return but this is the first where VAT is part of the equation.

We've completed our first year as a VAT registered partnership and submitted a successful claim for the VAT on stock on hand at registration. The amount received was approx £4,000. We're on the Flat Rate Scheme and Annual Accounting Scheme.

We were told to reduce our stock account by the amount of the re-payment which makes sense. However, i'd really appreciate it if someone could let me know whether this re-payment should also have been recorded elsewhere in our accounts.

Any helpful articles online regarding the treatment of such a VAT repayment have evaded me so far, despite a great deal of Googling so i'm hoping a kindly soul will be able to shed some light on this for me.

It's late and my brain is slowly switching off so please let me know if I've missed anything.

Many thanks in advance.

Comments

Reduce cost of stock / reduce money owed to HMRC for VAT 1 thanks

DMGbus | Mon, 30/01/2012 - 08:46 | Permalink

In accountants' terminology you would...

Debit VAT account and Credit Purchases.

in plainer English you'd do what the title of this reply says.

Basically you've bought goods / stock for resale, paid the VAT out as a cost and subsequently found that under the pre-registration VAT rules the VAT cost can be recovered - so the cost of stock (purchases) (cost of sales) has reduced and your liability to pay VAT to HMRC has been reduced by this credit.

The timing of the VAT registration in relation to the financial year end may have some impact on what I've said, as in: "was the partnership VAT registered before or after the financial year end concerned?" If you quote the two dates (date of VAT registration and date accounts drawn upto) then I can clarify. Actually a third date would be useful too: the date that the first VAT return was drawn upto.

PS. Presumably you reclaimed VAT back on Fixed Assets (equipment/vans) too? This has a slightly different treatment.

Then there's the VAT incurred on pre-registration services to consider as well.

ElectricAngel | Mon, 30/01/2012 - 19:57 | Permalink

Hi DMGBus,

Thanks for your message - really helpful.

We completed our VAT registration in March and it became effective on the 1st April - the start of our financial year. The first return was submitted in May covering only one month (April 1st - 30th) and this is when we claimed for stock on hand. No claim was made for equipment / vans etc.

The payment we received was for £4713.25 - the claim was for £4,904.49 and our April liability of £191.24 was deducted from this before being credited to our bank account.

For the financial year as a whole (ending on 31st March) we owed £4,297 of VAT to HMRC. Balancing payments of £2641.24 were made (this includes the £191.24 for April mentioned above).

As we had already received the repayment for stock on hand (credited to us in September), we still owed £1655.76 at year end which was paid the following June.

The thing i'm having trouble with is the part of the Partnership return where I need to enter expenses.

HMRC say that if on the FRS you can enter gross figures (both income and expenses) then include the VAT you've paid to them for the year in box 3.63 as 'other expenses'.

In this case i've confused myself re whether I need to enter -

a) The full VAT liability i.e. £4297

b) The amount actually paid by year end: £2,641.24

OR, c) Actually credit somewhere with £3057.49 - the positive balance we're left with when we subtract the balancing payments and repayment from the year's VAT liability.

As it's usually the case with the FRS that Flat Rate liability is debited from sales, in the case of a surplus due to a VAT repayment, do I credit this to sales/income?

Apologies if i'm just running in circles - any help is greatly appreciated as at least i'll be battling in the right direction!