VAT Cash Accounting & Rounding

Posted by kevang PM | on Sat, 30/10/2010 - 23:41 1386 6 comments | report

I have a client on VAT Cash Accounting. His clients for the most part cannot recover VAT and he quotes them VAT inclusive prices. He then give them an invoice showing net price, VAT amount and gross price. Seldom if ever are the values he calculates correct. I enter his invoices into Sage 50 via batch entry.

Often his clients (especially the slow payers) pay many invoices at once and in random date order therefore it is impossible to work out what invoices are being paid. Often is is simply 'something on account'.

I'm sure you can see what is coming next. When the payment is posted on account the VAT is calculated correctly by Sage. When at a later stage you try to allocate the payments you get a net/vat mismatch between the payment and the invoices being paid. And of course problems arise at the end of the quarter when the VAT transfer is done

Given that coaching the client about the VAT fraction and how to calculate 'gross to net' has repeatedly failed and sending him away to rewrite and reissue in excess of 100 invoices a month would strain the bookkeeper / client relationship some way beyond breaking point, what is the consensus as to what should be done?

My personal solution is to simply 'calculate net' in batch entry but it would not look good at a VAT inspection if none of the invoices matched the entries in Sage.

Kevang

Comments

My personal solution is to simply 'calculate net' in batch entry

sarah douglas | Sun, 31/10/2010 - 09:22 | Permalink

''My personal solution is to simply 'calculate net' in batch entry but it would not look good at a VAT inspection if none of the invoices matched the entries in Sage.''

Kevang . You are putting yourself in a very difficult position here. Effectively because he is not willing to to do his invoices correctly he is putting you in a position to enter incorrectly. Which is not fair on you. You have answered your own question.

I would not change anything but I would write to him to let him know you will be entering the invoices with the figure he has given you, and the onus is on him for the HM Revenue as too why his vat control does not add up .

You could also try doing a invoice on excel where is has a formula so he cant make mistakes.

- Kind Regards Sarah@ Douglas Accountancy & Bookkeeping Services, Glasgow

VAT visit

booklynn | Sun, 31/10/2010 - 09:31 | Permalink

I had a similar problem which I cured by offering to take over his invoicing.

This ensured the correct VAT was shown on all invoices. I liased with customers & requested they sent a breakdown of invoices they paid (larger firms do this). This increased my workload but also my income and took the pressure of the Client.

It took a little while to get the hang of his pricing structure but he posts his work daily on his Outlook calendar & I invoice at the end of the month.

Oh and having a VAT visit helped put the wind up him to take action too! They don't take too kindly to the excuses as to why the VAT is not calculated correctly.

VAT Inspection

kevang | Sun, 31/10/2010 - 23:21 | Permalink

I have tried taking the invoicing from him. He won't allow me for two reasons, firstly, he does not want to pay me to do something "he can do perfectly well himself" and secondly, he deals with a quite a lot of customers who are not on account and they have to settle their invocie there and then.

A tongue in cheek answer to the problem is to get him onto standard VAT, then there is only VAT to contend with on the invoice. I'm sure that except for a few round figures such as £100, the Vatman would not recognise 17.5% VAT being incorrectly calculated when confronted by a list of net, VAT and gross amounts on a printout, unless it was grossly incorrect!

Becuase his gross to net calculations are so bad they can either over or understate the VAT due. Over a period they probably pretty much cancel themselves out.

I think I will present him with the options:

1. Get the gross / net calculation correct and I will enter your figures, I will then stand by them at a VAT inspection.

2. I will post correctly calculated entries, he can then explain why they don't match his invoices to HMRC if necessary

3. I will post using his calculations, he can explain the problems arising with the control account.

I really hope he doesn't go for 3, if HMRC do spot the issue, he will have to explain it but ultimately I will have to sort it!

Kevan

Manual solution?

sjcollins | Mon, 01/11/2010 - 09:05 | Permalink

Casio do a small desk calculator (MS-120TV) in which you can store a tax rate, which allows it to do the Gross to Net and Net to Gross calculations at the touch of a button. No more complex formulas to remember.. Simply enter the Net Amt and press Tax+ or enter the Gross Amt and press Tax-.... could your client cope with this?

Manual Calculation

kevang | Mon, 01/11/2010 - 15:21 | Permalink

Hello SJ

Lets face it gross divided by 1.175 = net. Gross less net = VAT or using 7/47 is hardly rocket science it?

I think I will try as you suggest and get him (and bill him naturally) for a tax rate calculator and programme in the rate

Kevan

Even a monkey could to it!

sjcollins | Mon, 01/11/2010 - 18:32 | Permalink

Kevan,

I agree wholeheartedly, but obviously remembering the numbers to type and deciding if you need to divide or multiply was all too much for your client - hopefully even (s)he will be able to remember what to do with just two options presented to them - good luck.