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What should year end VAT balance on Balance sheet relate to?

What should year end VAT balance on Balance...

Client is on the flat rate scheme and cash accounting.

I understand what how the quarterly VAT returns are calculated but what should the year end VAT balance relate to in the year end accounts

The client has posted invoices onto Sage in the normal accruals method as you would with a normal sales day book and purchase day book but using this method the closing VAT balance is calculated on the accruals method, rather than the FRS and cash accounting

Is this balance therefore correct or do i adjust to reflect the fact they are operating the FRS and cash accounting schemes and if so how do i do this?

Hope this maks sense??

Thanks in advance


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By Monsoon
07th Jul 2011 16:04

flat rate gain/loss

The difference between the amount of VAT due on the FRS and the standard scheme is debited/credited to the P&L account and is duly taxable in either direction.

The VAT account on the BS should be the acutal VAT due, i.e. under the FRS.

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07th Jul 2011 16:08

VAT query

Thanks for the reply- when you say the difference is credited/debited to P&L do you mean either DR or CR to sales?

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07th Jul 2011 17:05

Yes, but ...

I agree that the VAT creditor should be the amount due under FRS, but it should be the amount due under the standard, not cash, accounting method.  You have included all the sales invoices in the accounts, whether paid or not, so you must include the flat rate VAT liability on all those invoices.  If the client's VAT quarters coincide with its accounting date, the VAT liability in the accounts should be the balance on the VAT return for the final quarter plus the flat rate VAT on the trade debtors (if the VAT quarters don't coincide, do yourself a favour and change the VAT quarters).

If the client has kept its books on the standard VAT accounting method and the expenditure appear in the accounts net of VAT, the expenditure is technically mis-stated by 20%.  Under FRS, there is no recovery of input VAT on expenditure (apart from capital items) and the expenditure should be stated as paid inclusive of VAT.  The recommended method is to show in the accounts all income and expenditure inclusive of VAT charged and then to DR the FRS liability to Sales.  However, if the client has used the standard VAT accounting method in its books, you will be left with a CR to Sales, DR to VAT liability, assuming that less VAT is payable under FRS (if not, get out of the scheme).

Oh!  And if your client's accounting policy on recognition of turnover mentions VAT, you may need to amend it appropriately.

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