VAT exclusive figures

VAT exclusive figures

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Please forgive me if this is an obvious question/answer. I have worked in practise for almost twenty years, first ten years for two seperate practises and the last ten years in my own capacity. The second practise I worked for the sole practitioner was a registered chartered accountant and he always said when accounting for VAT in limited company accounts that all figures must be shown exclusive of VAT. As a result I have always done so. Is this true though? I can never find anything to the contrary or in agreement to what he said.

The reason I ask this now is because I have just taken on a client who is limited, their accounts need to be in with Companies House by 6th December, their current accountant is avoiding them through no fault of their own and I am up for the challenge. However it would really shorten the time involved if VAT can be included in the figures.

Please no high horses. We are all learners when it comes to accountancy whether you have been in it for twenty or fifty years!

Replies (9)

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By jndavs
02nd Dec 2014 14:04

Vat registered?

There is nothing special about limited companies. Surely this is dictated by whether the business is vat registered.

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Euan's picture
By Euan MacLennan
02nd Dec 2014 14:14

Agreed

If the company is VAT registered, you could not prepare true and fair accounts without extracting the VAT to show net amounts for revenue items and a VAT creditor or debtor.

If the company is not VAT registered, it is true and fair to include VAT in all the figures for expenditure because the cost to the company is the total including VAT.

Or are you talking about accounting for VAT if the company is on the Flat Rate Scheme?  If so, the recommended method is to include VAT in all figures for income and expenditure and then, to deduct from turnover the VAT actually paid under the FRS.

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By helen0904
02nd Dec 2014 20:28

It's funny what you say about not showing true accounts for VAT purposes. The first practise I worked in we used to prepare quarterly bank reconciliations with clients that were VAT registered regardless of whether they were limited or not. These reconciliations then formed the basis of the annual accounts. When I left there I was a bit taken a back when the second practise didn't do this but just prepared the accounts gross of VAT. Needless to say while I run my own practise now I follow what I was taught in the first practise and not the second. I will however continue to show limited companies exclusive of VAT. Plus I got that new client today even though the existing accountant is claiming she is ready to submit the accounts just needs the authentication code. I did advise the client she needs to see the accounts before they are submitted. Thanks for the assistance much appreciated.

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Replying to Tax Dragon:
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By jndavs
03rd Dec 2014 02:07

No

helen0904 wrote:
  I will however continue to show limited companies exclusive of VAT.

If the company is not vat registered (or on a flat rate scheme if it is) the figures should be reported gross.

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Replying to Tax Dragon:
Stepurhan
By stepurhan
03rd Dec 2014 09:14

Double entry?

helen0904 wrote:
I will however continue to show limited companies exclusive of VAT.
If a company is not VAT registered, what do you do with all the VAT you take out of the expenses? If a company isn't VAT registered, then they cannot, by definition, have an asset for VAT.

Hopefully you get it into the profit and loss account somehow. If you don't, then you will overstate profits on every non-VAT-registered company you do this on. The income stays the same (as there is no VAT to adjust on this) but the expenses are all lowered by the removal of VAT.

Not sure what bank reconciliations has to do with question. Bank reconciliations are just a normal feature of book-keeping. You would do a reconciliation as often as you do the book-keeping (quarterly, annually, etc). It has nothing to do with VAT.

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Euan's picture
By Euan MacLennan
03rd Dec 2014 10:43

You have lost me

helen0904 wrote:

The second practise I worked for the sole practitioner was a registered chartered accountant and he always said when accounting for VAT in limited company accounts that all figures must be shown exclusive of VAT.

helen0904 wrote:

I was a bit taken a back when the second practise didn't do this but just prepared the accounts gross of VAT.

Which was it - exclusive of VAT or gross of VAT?

You have been given the correct answer by all of us.  It does not matter whether the client is a limited company or a sole trader.  If the business is VAT registered and not on the FRS, you must show all figures exclusive (i.e: net) of VAT.  If the business is not VAT registered or is registered, but on the FRS, you must show all figures inclusive (i.e: gross) of VAT (although a business which is not VAT registered will not be charging any VAT on its sales).

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paddle steamer
By DJKL
03rd Dec 2014 11:29

Dark ages

A long time ago I did see accounts where everything was stated gross and there were separate  lines within the profit and loss for the output vat and the input vat. I suspect it was a throwback to accounting for purchase tax pre vat.

Certainly convention suggests that all costs are stated net of vat and all income is shown net of vat, things like GP% might get a bit confusing if some accounts were on one basis and some on the other.

For non limited accounts that are vat registered I am not convinced there is anything to stop such an approach being taken,  I do however think it is a bad idea. For limited accounts whilst it would be fine within the detailed P&L, which does not form part of the statutory accounts, I think the statutory accounts profit and loss heads would in aggregate require the attributable vat adjusted from their totals. Now if only sales, cost of sales and admin costs it might be possible to split the vat figures quickly to the heads, but if other statutory P&L headings not sure much time saving. For one thing if you started reallocating costs between heads you would need to switch attributable vat and with say asset purchases you would need to adjust balance sheet entries.

For a simple company I am sure it could be done, but if it were myself I would prefer to get the client to do his/her vat returns as part of the double entry accounting entries rather than as a distinct set of records needing adjusted into the double entry records. (Reminds me of the old simplex vat register/ weekly cash/bank books and trying to join them together. (Did anyone ever have a client who completed them fully, we never did ?))

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By helen0904
03rd Dec 2014 11:25

Thanks for all the responses. I should have made it clear that the clients in question are VAT registered and under no circumstances would I be extracting VAT from the expenses unless they were registered.

Where they are registered I much prefer to show the figures net of VAT as it gives a true reflection on the accounts. Where client's records allow I extract the VAT but only if they are registered for VAT.

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By andy.partridge
03rd Dec 2014 11:30

I like the question

Just occasionally there might be something I have happily done as routine for 20 years or so and then thought, 'I wonder if I've been doing it wrong all this time?'

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