Accruing for VAT

Accruing for VAT

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A new FD wants to make a change to our VAT process.  He wants us to include VAT on amounts accrued for.  These comprise supplier invoices received but not yet cleared to creditors and debit notes from customers which have not yet been translated into credit notes.  Apparently he has done this previously.

The effect will purely be timing and will result in VAT recovery on some items roughly one month quicker than would otherwise have been the case. 

I am not sure whether this is strictly legit.  Am I wrong?

Replies (14)

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By andy.partridge
18th Jun 2015 14:31

Clarity, please

What does 'supplier invoices received but not yet cleared to creditors' actually mean in your company. Do the tax dates on such invoices fall within the VAT quarter or not?

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By User deleted
18th Jun 2015 14:34

Timing

Assuming that VAT is being accounted for on the accruals basis, then you should recover the input VAT as soon as you have received a valid VAT invoice or issued a valid credit note. That is all there is to it. But it will only complicate your accounting if you start to claim input VAT on invoices not posted to the system - you would need in particular to watch that there is no double-counting.

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By User deleted
18th Jun 2015 14:36

Accrual?

Is it accrual? Aren't you basically accounting for an invoice received?

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RLI
By lionofludesch
18th Jun 2015 15:22

Got Round

Is this just "invoices that we haven't got round to dealing with" yet ?

Obvious question - you're not on cash accounting, are you ?

Another obvious question - are these amounts material ?

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By WhichTyler
18th Jun 2015 15:52

Posting date =/= document date

This sounds like our system, where there is a lag between invoice being received and posted to the PL, because they are only posted once they have been approved by the right person (which makes some sort of sense). This, combined with a fast month-end close of the PL, means some invoices will have VAT recovery delayed.

As part of your VAT return process, you could run a report on invoices with document date in the right quarter, but posting date afterwards, and add this to your input tax. But as BKD says, make sure that you put the reverse entry into the following quarter to avoid double counting

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Replying to Truthsayer:
By Democratus
18th Jun 2015 16:00

Perfectly Normal approach

WhichTyler wrote:

This sounds like our system, where there is a lag between invoice being received and posted to the PL, because they are only posted once they have been approved by the right person (which makes some sort of sense). This, combined with a fast month-end close of the PL, means some invoices will have VAT recovery delayed.

As part of your VAT return process, you could run a report on invoices with document date in the right quarter, but posting date afterwards, and add this to your input tax. But as BKD says, make sure that you put the reverse entry into the following quarter to avoid double counting

I have always done this - before finalising any return I scour the department to find any relevant VAT invoices dated before the end of the tax qtr and accrue the input. Obviously reverse the next qtr and repeat.

Nowt wrong and reconciliation is easy.

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RLI
By lionofludesch
18th Jun 2015 16:02

Unclear

Are we talking about putting some accrual entry on te computer records ? In which case, why not just post the invoice up ....

Or some "back of the Nicotinell packet" list, adjusting the VAT calculation so that the computer records don't quite agree with the return ?

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Replying to Tim Vane:
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By rorydowney
18th Jun 2015 16:11

I agree - why complicate things?

lionofludesch wrote:

Are we talking about putting some accrual entry on te computer records ? In which case, why not just post the invoice up ....

Or some "back of the Nicotinell packet" list, adjusting the VAT calculation so that the computer records don't quite agree with the return ?

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Replying to Tax Dragon:
By mrme89
18th Jun 2015 16:21

Corporate World

rorydowney wrote:

lionofludesch wrote:

Are we talking about putting some accrual entry on te computer records ? In which case, why not just post the invoice up ....

Or some "back of the Nicotinell packet" list, adjusting the VAT calculation so that the computer records don't quite agree with the return ?

 

Internal queries such as department allocation can hold up posting the invoices.

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RLI
By lionofludesch
18th Jun 2015 16:20

Accuracy v Speed

The point I'm making is that there's a balance between accuracy and speed.

Any fool can get the accounts out a minute after the month end if accuracy's not an issue.

But maybe it'd be wiser to see if any invoices come in via the post over the next couple of days.

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By andy.partridge
18th Jun 2015 16:38

Department allocation

That kind of thing ought to be sorted in nearly all cases at the purchase order stage.

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By rorydowney
18th Jun 2015 17:03

Internal Queries

But the internal queries are going to be extant within the accrual? So why not just credit it out with a journal if needed?

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By Poindexter316
22nd Jun 2015 13:25

"Legit", yes it is

Used widely

The only thing you need to remember is that an accrual method requires agreement (to the method adopted) by HMRC.

Cashflow benefit on a permanent basis until cessation

The VAT legislation does not require that you have actually paid your VAT before you claim it as Input Tax (it will claw it back under bad debt rules if you don't)

 

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By patvanaalst
22nd Jun 2015 14:54

Timing

I believe most systems will ignore the G/L (or N/L) period when calculating the VAT return so there's no need to adjust for late invoices - so long as they are posted before the VAT return is calculated.

i.e. if you accrue a March invoice in the March management accounts, publish the accounts, post a March invoice afterwards, then run the VAT return you'll be no worse off.  Any balance sheet prepared in the management accounts will be a little understated (with both entries falling in creditors) but that's all.

In fact, thinking on it, that would undermine the idea of accruing the VAT as you'd have the accrual and the invoice in March, then a reversal of the accrual in April!

It might be worth the OP looking at how the software they use calculates VAT?

 

Cheers

Pat

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