Share this content
0
439

Partial Vat - Accounting method

Does HMRC stipulate how Partial Vat should be accounted for ?

Didn't find your answer?

Search AccountingWEB

My client requires Partial Vat accounting. 

We know the proportions of Exempt/Non-exempt service that they provide, so we are able to calculate the proportion of input Vat claimable.

We have set up a Hybrid Vat rate within the software, that is used on all relevant purchases, and results in the correct proportion of vat to be captured at transaction/line item level. This then feeds the Vat return, thereby ensuring the Vat claimed is the correct proportion.

At the end of the year we recalculate the proportion, calculate the Vat that should have been claimed, and then do a single journal to put this adjustment onto the next Vat return. 

I can't find any specific guidance in the HMRC manuals about how the bookkeeping should be done. Can anyone point me to relevant section ? Does the above process sound acceptable ?

 

 

 

 

 

Replies

Please login or register to join the discussion.

18th Mar 2019 16:59

HMRC have absolutely no interest in how a business keeps its books (save that they are complete and accurate)!

Thanks (0)
avatar
to Wilson Philips
18th Mar 2019 17:15

So why are we doing MTD ?

Thanks (0)
to Wilson Philips
18th Mar 2019 18:04

Agree - it's no longer the case, Wilson.

Thanks (0)
18th Mar 2019 18:06

Platta

If you "know" the Taxable/Exempt proportion, why do you need to do an annual adjustment ?

Telling us more about your business would enable us to give a sensible answer.

Thanks (1)
avatar
By Platta
to lionofludesch
18th Mar 2019 18:20

Because business changes, and the proportion of claimable Vat will fluctuate from year to year. The current years correct proportion can only be known after the end of the year - so for simplicity HMRC allow the prior years % to be used for the current year, but they require a correcting adjustment to be processed - at the latest on the 1st Vat return of the new Vat year.

Thanks (0)
to Platta
18th Mar 2019 18:30

"Know" was a bit of an exaggeration.

Well, the answer, apparently, is a journal entry.

How you actually enter that in the particular software you use is between you and your software provider but I suspect that getting the right answer will excuse any peccadillos in method.

Thanks (0)
avatar
By Anita14
18th Mar 2019 21:02

What you're doing sounds fine. you appear to be using the "in year provisional recovery rate" method referred to in para 4.5 of VAT notice 706 https://www.gov.uk/guidance/partial-exemption-vat-notice-706#section3
I normally code shared overheads on a different VAT code (in Sage), using the net and VAT shown on the invoice. At quarter end I'd run a calculation in Excel and post an adjustment to the VAT return which posts a journal and, yes, an annual adjustment to be done as well. This method was advised by an ex-VAT inspector, although your method of applying a percentage to every transaction probably gives better month on month reporting, especially if the irrecoverable VAT is a sizeable sum.
Incidentally, separate calculations outside of the VAT software will still be permissible under MTD.

Thanks (0)
19th Mar 2019 09:41

Are you splitting your input tax up into Yes, No and Maybe or are you applying the fraction across the board ?

Thanks (0)
avatar
By Platta
19th Mar 2019 09:54

Thank you all for the very useful input.

Thanks (0)
Share this content