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VAT on money received in advance and XERO.

VAT on money received in advance and XERO.

I've been through this before but really need some help.

We receive payments on account from clients on a monthly basis to cover estimated fees for work to be carried out during the year.  We invoice when we do the work so sometimes the client is in credit and sometimes not.

On Sage it's not an issue as when we receive the money we pay the VAT (Cash accounting) even when they are in credit.  On Xero there is a problem whereby it doesn't automatically pick up the VAT on these overpayments until it is allocated against an invoice.

Prepayments are given an invoice number which is crazy!

All we want is this:

Receive money in advance, show this as a credit on the client account, pay the VAT to customs on this banking.

Not show this as a sale in the accounts but show as a sale for the VAT return.

Not give this overpayment an invoice number as it is not  a sale.

Is there anyway to do this in XERO as otherwise to my mind XERO doesn't operate the cash accounting for VAT correctly. In sage when receiving the money it asks if VAT should be allocated to the banking which to me seems the obvious way to deal with it.

Last time I put a question similar to this up someone said that XERO does it correctly but SAGE does it wrong- I don't agree.

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By Ash_D86
15th Oct 2014 13:18

Payments in advance

@djn24 - at the moment there isn't a direct feature in place where you'll be able to process an overpayment and claim/pay the VAT.

If you did want to generate a VAT transaction on the receipt of the 'payment on account', the prepayment feature in Xero will allow you to do this. 

Yes it will generate an invoice number, due to the fact that an official tax point date / document will be needed for audit purposes. You can override the automatic number sequencing if required. You could also create an additional chart of account code for these types of transactions, meaning the sales account isn't required. 

Although these prepayments will not directly affect your customer statements, they will still be shown at the bottom, indicating the payment received. 

If you did want to continue to use the overpayment feature for these transactions, you could generate a VAT adjusting manual journal directly to the VAT return.

For further information on how this can be done, please pop an email to [email protected] mentioning this thread

Ashley Driver
Education Specialist, Xero
@Ashtag_86 @Xero

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By djn24
15th Oct 2014 13:31

Ashtag_86 When you say that these overpayment will not directly affect customers are you saying that:

I invoice a client for £5000, they pay me £6000, then it will not show on a debtors statement run that they are in credit by £1,000?

 

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By Ash_D86
15th Oct 2014 13:53

Prepayments vs. Overpayments

@djn24 - an overpayment in Xero will adjust the balance of your clients statements, however a prepayment will only appear at the bottom - indicating the receipt. It will not directly affect the balance.

For example:

If you process an overpayment for £6000, your clients statement will show (£6,000)

If you were to process the same as a prepayment, it would show at the bottom of the statement but the balance would remain at £0.00.

In both of the above cases if you were to apply the overpayment / prepayment to an actual invoice you've generated, it will reduce the amount outstanding.

Ashley Driver
Education Specialist, Xero
@Ashtag_86 @Xero 

 

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By djn24
15th Oct 2014 15:11

Ok so if I want the client balance to show as the (£6,000) as that is the correct figure, will the VAT be picked up on this?Will it give an invoice no. to this overpayment?

 

 

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By Ash_D86
15th Oct 2014 15:52

Prepayment Option

@djn42 - if you want to display the negative figure and deal with the VAT all on receipt of the payment on account, the prepayment is the option i'd recommend.

It will give an invoice number but you could use a different sequencing for these transactions.

I've popped in the Help Centre link and a short video to Xero TV too.

Ashley Driver
Education Specialist, Xero
@Ashtag_86 @Xero

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By djn24
15th Oct 2014 16:06

Yes but then when I send a statement the client on a monthly basis wouldn't it be wrong?

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By Ash_D86
15th Oct 2014 16:22

VAT or Statement Balance

@djn24 - the statement being sent to the client will still show the transactions at the bottom so they will be able to keep a record of what their payment on account position will be.

The only way to account for the VAT and display a negative figure is to use an overpayment along with an adjusting journal. 

In my opinion, I would use the prepayment feature so the more complicated issue of VAT is sorted, then send out the statements with payments on account at the bottom. 

As soon as the invoice is generated and these transactions applied, the customer activity statement will display all transactions through this contact.

Ashley Driver
Education Specialist, Xero
@Ashtag_86 @Xero 

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By djn24
15th Oct 2014 16:32

If I have say 100 clients with credit balances then would this be time consuming?

 

How would I know who was in credit? Would I need to check every statement to ensure that the wrong ones (with zero balance) were not sent out?

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By Ash_D86
15th Oct 2014 16:48

Intuitive

@djn24 - it's really easy to keep on top of balances. Each time you enter an invoice in Xero and there is a credit balance, you'll be asked if you'd like to apply the outstanding credits against the new invoice.

This way all of the balances are maintained and there aren't any old transactions sitting there waiting to be used up.

Check out the Help Centre link here.

Ashley Driver
Education Specialist, Xero
@Ashtag_86 @Xero

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By djn24
16th Oct 2014 08:21

No I don't mean that sorry if I'm not being clear.  In sage I run a month end debtors report which will print every debtor's statement.

I'm a bit worried that using the prepayment route that you say, that the clients who are in credit will have a zero balance which is wrong.  Will I then have to run a separate report for those in credit?

I've looked at this and spoken to quite a few people about this issue and I have to say that Xero really does make something so simple as receiving a payment on account so difficult.  It is about the one thing that is stopping our practice from transferring our books from Sage.

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By djn24
16th Oct 2014 08:37

Having a look around accounting web it seems that this issue has cropped up quite a few times over the last year or so. All having almost identical issues to us.

At the end of the discussion someone from Xero says something along the lines of 'it will be passed to development and we are always happy to look at improvements' but it seems as if nothing has been done. So I guess that is just a standard answer to please users.

Now I know that things take time but I would much prefer Xero to be honest and say we have no plans to change this silly way of trying and failing to deal with this issue.

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By Ash_D86
16th Oct 2014 08:52

Product Development

@djn24 - thanks for coming back to me on this. Please be assured that we do not make sweeping statements about passing feature requests over to our Product Team. All of these do in fact get passed on to the right people & prioritised on our road map.

I'm sure you can appreciate that depending on the particular request, other projects going on, along with how many are interested in the feature, determines how quickly this is integrated into Xero. 

We do try to prioritise accordingly which is why the feature request pages on our community site is such an important tool to our developers. It really helps them understand what features are needed and how quickly.

I've included a link to this particular feature request on our community site here, please get voting and this will get moved up the list.

Thanks

Ashley Driver
Education Speciaist, Xero
@Ashtag_86 @Xero 

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