Account for VAT refund of historic overpayment

How to account for VAT returned to Ltd company, from a historic overpayment

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Within tax year to Mar 23, I discovered my ltd company (micro-entity) had a historical overpayment (3 years earlier) of VAT of 2500, and it was repaid by HMRC.  How is that amount to be treated in the accounts?  

Thanks

Replies (7)

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paddle steamer
By DJKL
03rd Dec 2023 13:42

Against the debtor balance created by the previous overpayment.

Dr Bank
Cr VAT debtor

Thanks (1)
Replying to DJKL:
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By asdar
04th Dec 2023 22:52

Thank you,

The problem was due to a fixed rate VAT calculation error about 5 years ago that was only spotted recently. So there was no debtor balance from the overpayment in any previous year's accounts.

I also just realised I was confusing myself thinking of the returned amount as VAT.

The amount overpaid, should have been income, but was paid as VAT by mistake.
Therefore should it be counted as income in the year it was finally returned.

Does that make sense?

Thanks (0)
Replying to asdar:
paddle steamer
By DJKL
05th Dec 2023 09:58

Well, how do you normally account for the fixed rate vat?

Wherever it usually gets posted you need to post the error, so Cr somewhere (income/sales etc) Dr vat debtor.

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By Tax Dragon
03rd Dec 2023 14:22

Is any of it due back to your customers?

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Replying to Tax Dragon:
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By David Ex
03rd Dec 2023 16:11

Tax Dragon wrote:

Is any of it due back to your customers?

And, indeed, is the repayment correct as the OP appears to be unrepresented?

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Replying to Tax Dragon:
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By asdar
04th Dec 2023 23:11

Good question. No, luckily it's simple, the company was paying flat rate VAT as a software consultancy, so the error, which was in the calculation, didn't change the 20% VAT the customer was paying.

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Replying to asdar:
Routemaster image
By tom123
05th Dec 2023 07:51

So the gross income from the customers is unaffected, less of the total is now vat - therefore more of it is sales.

Dr Bank, Cr Income.

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