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Showing VAT in a P & L

Showing VAT in a P & L

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If a profit and loss is drawn up with all figures including the VAT within them (Gross), then would any VAT liability be shown as a separate expense or would it not as it is already accounted for within the Sales and expenses as Gross figures. This is all done under the cash accounting scheme.

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By Mouse007
26th Aug 2013 19:29

VAT PAID and due (not just liability)

would be "the expense" (or VAT refunded and claimable an "income")

being the difference between input and output VAT for the accounting period.

 

Although I would prefer to see the figures net.

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By PKan
26th Aug 2013 22:33

in the p&l you are better off

in the p&l you are better off keeping everything net , the vat is a separate issue and balance sheet (asset & liability) items and belongs to HMRC not the company.

Including vat in your P&L will make it very tricky to see what your real profits are and complicate any further analysis on the numbers within.

 

 

 

 

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Replying to PKan:
RLI
By lionofludesch
28th Mar 2017 14:12

PKan wrote:

in the p&l you are better off

in the p&l you are better off keeping everything net , the vat is a separate issue and balance sheet (asset & liability) items and belongs to HMRC not the company.

Including vat in your P&L will make it very tricky to see what your real profits are and complicate any further analysis on the numbers within.

 

 

 

 

I don't agree. If it's done properly, the profit will be the same.

I used to do this for one unincorporated client wher it just wasn't practical to separate out VAT from expenses. It didn't affect his profit. Nor did it really affect any interpretation of his accounts.

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By johngroganjga
27th Aug 2013 08:50

SSAP 5

Showing income and expenditure net of recoverable VAT is not just a good idea, it is a requirement of SSAP 5 for accounts intended to give a true and fair view..

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By dialm4accounts
27th Aug 2013 13:28

It's allowed on the new cash basis

For the smallest sole traders and partnerships with no companies as partners, it is permitted from April 2013 to prepare accounts on a cash basis - and this also allows for businesses to prepare a P&L net or gross of VAT if they are registered http://www.hmrc.gov.uk/budget-updates/11dec12/2014-2016-technical.pdf

That said, how would you show the VAT liability in the balance sheet if you had included the VAT on the P&L...?

I'd probably prepare the P&L net for a VAT-registered business, even using the simplified accounting method.

M

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Replying to atleastisoundknowledgable...:
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By julian.sims
27th Aug 2013 16:46

New Cash Basis

My reading of the guidance notes on the Simpler Income Tax (cash basis) rules are that you have to include figures (receipts or payments) inclusive of VAT and also include as receipts / payments, the VAT repayment/payment.  This seems quite clear at paras 17 / 24 with defn of receipts (s106A) and para 26 / 31 (s94B) with defn of payments.

 

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Replying to julian.sims:
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By lionofludesch
29th Mar 2017 10:15

julian.sims wrote:

New Cash Basis

My reading of the guidance notes on the Simpler Income Tax (cash basis) rules are that you have to include figures (receipts or payments) inclusive of VAT and also include as receipts / payments, the VAT repayment/payment.  This seems quite clear at paras 17 / 24 with defn of receipts (s106A) and para 26 / 31 (s94B) with defn of payments.

 

Strange, isn't it, that HMRC make accounts so simple, whilst insisting on making everything else much harder?

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By ChrisMcEnaney
27th Aug 2013 16:24

VAT workings

Surely you must have some VAT working. Otherwise how do you know you're claiming input VAT correctly?

 

Is it not possible to use your VAT workings to code the Sales and Purchase VAT against the correct expenses?

 

Debit all sales VAT to your Sales, and credit your Purchases VAT using your workings.

 

Unless you are using the FRS. As this is based on Cash receipts (cash basis) you can just debit this against your sales.

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By DMGbus
27th Aug 2013 19:26

Bookkeeping system

Years ago there was a handwritten bookkeeping system called Simplex.

There was a cashbook where all transactions were gross inclusive of VAT.

Alongside this, if VAT registered, there was additionally a VAT book.

This created extra work - having to analyse the input tax (This was one of several reasons why I never really liked Simplex as a bookkeeping system).

In the Simplex system scenario therefore I can see from a cost-efficiency viewpoint a justification for showing income and expenses gross in the accounts (OK, no material effect on P&L)... BUT "what about capital expenditure?".

Problem: fixed assets (where VAT recovered) stated at more than cost if input tax accounted for on P&L by posting VAT payments to HMRC as a VAT cost.  

As it turns out, in 3 or 4 decades of seeing small business accounts I've only ever once seen a set of accounts for a VAT registered business with figures inclusive of VAT - a case where the accounts preparer was clearly one for taking short cuts as sales was a figure described as "net of part exchanges".

 

 

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By Ali S
21st Mar 2017 15:05

If the Ltd company is not VAT registered (therefore does not charge VAT on sales invoices), can it account for cost invoices in the P&L inclusive of VAT as it will not be able to claim back VAT.

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Replying to Ali S:
By johngroganjga
22nd Mar 2017 16:11

It's up to you.

If you wanted your accounts to show how much VAT could have been recovered if the company had been VAT registered and fully taxable, you would show the input VAT as a separate line. If that didn't matter to you, you would show everything gross.

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Replying to johngroganjga:
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By Kelly Maxwell
24th Mar 2017 15:12

Hi John

I just wanted to check; would this be an acceptable way of recording input VAT if you are a limited company?

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Replying to Kelly Maxwell:
By johngroganjga
25th Mar 2017 15:33

Not sure what you mean. Would WHAT be an acceptable way etc.?

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Replying to johngroganjga:
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By Kelly Maxwell
27th Mar 2017 10:25

Hi John

Sorry if I have misunderstood. I want to be able to show all P&L expenditure gross and have an input VAT line shown separately on the P&L so the net effect is the same.

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Replying to Kelly Maxwell:
By johngroganjga
28th Mar 2017 11:05

Yes that's what I said - "show the input VAT as a separate line" (if you want to).

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Replying to johngroganjga:
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By Kelly Maxwell
28th Mar 2017 11:13

Thanks John

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