Recording second hand margin scheme in xero

Xero & VAT margin schemes

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Has anyone found a magic way to generate a sales invoice in xero for a client which accounts for the VAT correctly but doesn't show the profit element separately?

I can see that I can record the transaction on 2 lines, zero vat for the cost element and 20% vat inclusive for the margin element to get the ledger and vat postings correct.  But client, understandably, doesn't want to send that to their client as they can immediately see what the margin my client has made.

Client has very few of these transactions and with the last one  (over 2 years ago) they were using different software. Now they are using xero and I fear it needs to be a word generated manual invoice sent to the client and just record it as I've suggested above in xero for internal purposes.

Any other/better suggestions please?

Replies (9)

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By Calculatorboy
03rd Dec 2020 23:16

Xero is a simple basic clumsy bookkeeping system , frankly I've dumped it

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Replying to Calculatorboy:
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By FayeBK
08th Dec 2020 22:00

5 or 6 years ago I would've agreed with you but after being forced to use it as more and more clients switch over I have changed my tune completely. I believe now that it's actually one of the best ones out there (excluding their abysmal online-only IT support team).

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By Duggimon
04th Dec 2020 09:16

If you put the VAT on the invoice, the client can work out the margin anyway, whether it's a separate line or not, it's just the VAT figure x 5.

Of course, under the VAT margin scheme you're not permitted to show the VAT on the invoice anyway, so that's a moot point. The invoices in Xero should be for gross purchase price with no VAT and a separate internal adjustment for the VAT element (Dr Sales Cr VAT).

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Replying to Duggimon:
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By tltodman
04th Dec 2020 10:04

Thanks. Understand what you're suggesting, but struggling to work out how to end up with the correct "net" amount in box 6.

Could invoice full amount at 0% to customer but not sure now to credit the VAT element off sales at 0% rather than outside scope (to which journals default)

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Replying to tltodman:
By Duggimon
04th Dec 2020 10:30

I don't know either, in Kashflow I'd just put in an invoice with a negative net figure and a positive VAT figure - so gross value of zero, but presumably you can't do that in Xero.

I've never tried to keep books in there so I'm not sure of the best approach, but it might just be to make the adjustment on the VAT return itself.

Please don't anyone take this post as an endorsement of Kashflow, it's awful.

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Replying to tltodman:
Giraffe
By Luke
05th Dec 2020 13:29

Can you not pick a different VAT treatment for each line of the journal in Xero?

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Giraffe
By Luke
04th Dec 2020 09:26

Can't help you with xero in particular but as Duggimon suggested, the invoice cannot show VAT. I have this with QBO and a client who mainly uses the global accounting scheme but has some items which fall under the second hand margin scheme. You will find that none of the big software can cope with VAT margin schemes.

In order to get the correct numbers on the VAT return (not forgetting you need to make adjustments in box 1, 6 and 7), we do a quarterly journal. Once the spreadsheet is set up to work out the numbers it is relatively simple to plug them in and then input the journal to QBO/ xero/ wherever.

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By reinis.salna
04th Dec 2020 10:13

You could possibly edit the invoice template in the invoice settings and remove the fields you don't want to show on the PDF invoice.

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By FayeBK
08th Dec 2020 22:21

Record the VAT element as a journal.

Put on the sales invoice as normal, use VAT code Zero Rated Sales (or whatever you usually use), dont show any VAT. In this example let's assume that would be for £2000.

Go to record a journal and make sure to change it at the top to be VAT INCLUSIVE.
Then, assuming a profit of £300, the first line of the journal will be Credit sales £300, make sure vat code on that line says "20% vat on sales". Second line of journal will be Debit £300, to sales again, but this time with vat code "zero rated sales" instead.

What it will do is CR vat £50, CR sales £250, DR sales £300, meaning that your VAT return will show the £50 in Box 1, and £1950 in Box 6 (£2000 less £50).

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