Overdue sales receipts & VAT implications

Overdue sales receipts & VAT implications

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My client made a sale of £24k including VAT some 9 months ago; and ofcourse output VAT on the Q return was paid by my client. The customer hasn't paid for the purchase yet and has asked time to pay the £24k over 2 years or convert the £24k to into equity - what would be the impact on VAT? 

My client’s worry is that- he paid £4k output VAT which the customer hasn’t settled – and this doesn’t sound right. One option is to reverse the transaction and post the mini sale over the 2 years – the payment period. But im not sure if this is right and what options we have re conversion to equity. I understand this could be seen as a separate transaction.

I also thought VAT doubtful debt relief is not available if payment is made in one form or another - like in this case, the payment will be paid in full in a couple of years down the line or converted into equity pound for pound. Any ideas will be greatly welcome.

Replies (4)

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By Mouse007
16th Nov 2013 19:01

Bad debt relief

Details here

I'd claim the £4k back on next VAT return.

If your client subsequently receives some payment, in part or in kind, then reverse the appropriate proportion of the claim.

 

 

Any reason why your client is not on the cash accounting scheme for VAT. Join that and get immediate relief.

 

 

 

 

 

 

Thanks (1)
7om
By Tom 7000
16th Nov 2013 18:56

vat ...6 month limit
Hi

Theres a 6 month vat limit. This means that automatic bad debt relief is given at 6 month point. So any outstanding money at this point you claim back vat in next return. As it is paid on the drip you then account for vat when received.

The same applies ro purchases btw. So all you guys out there with Crs > 6 months you have to pay the vat back...

This rule isnt optional...its the LAW...and there to stop unscrupulous traders putting dodgy purchase invs in that never get paid...good thing for you is its mirrored in sales

Of course if clients generally take a while to pay just switch to cash accounting :)

Hope that helps...tom

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By youngaccountant
17th Nov 2013 19:14

VAT payment

Could he ask the customer for a £4k payment initially, to cover the VAT portion of it.  I only think of this because that is what you do with lease payments etc, the first payment is usually the VAT amount.  But not sure if I have fully understood your concern so sorry if not much help here!

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By ps119v17
18th Nov 2013 12:15

THANK YOU ALL

thanks to you all. We have decided to reverse the output VAT and post the VAT over the loan period when we receive the payment. We have also switched to cash accounting scheme. We have discussed this with the VAT office. They seem ok with this.

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