My mobile phone contract with O2 comes through a partner reseller. I get a monthly invoice from O2, and also a £3 credit ‘discount’ from the reseller which show up separately in my bank account.
I have always struggled for the right way to record this. I am currently showing the £3 discounts as an invoiced item, but it throws my invoicing numbers out. And I also find every VAT return is a problem.
Related is that the latest VAT return wants to include 2 of these payments which were from 2019, and should therefore be locked. I’d really appreciate some help as I fight with this every VAT return.
Firstly, unless you have a document relating to any VAT on the £3 discount, you won’t be able to record any to the transaction.
So based on that, record your bill, then with the £3 discount, with VAT if you have proof, no VAT if you don’t.
The overpayment can be refunded into your bank.
If the dates don’t match, bounce the refund into the proprietors drawing, then back on the date received into your main bank account, with a note.
For future reference, its much easier to record such transactions, and pay from a personal account, when being split, and only bill the business part into quickfile, or your accounting software.
So in your case, would of been easier to enter only the business part of the phone bill, and pay from the proprietors drawings or Directors loan account.
It’s that the £3 are being pulled into the VAT return as sales income (there is no VAT applicable as such) even though they are not income in the VAT period.
So for the latest return, when I check the workings I see two £3 “sales” from Oct and Nov 2019 are showing in my Apr-Jun return. Yet both are noted as paid in Oct and Nov 2019. And they were missing from that quarter’s return.
As every quarter they cause a headache I thought it was time to see if there’s an easy way to resolve it for good.
Thanks Eddie - there’s no VAT applicable for the discount. The £3 each month shows up in sales income figure - but rarely in the right quarter. The latest VAT report as an example shows 5 monthly payments, not 3. There are two dating from Oct and Nov 2019 which I don’t understand as that quarter should be locked. And I can’t seem to get the automatic report not to pull them through.
I thought I could just add a line to the O2 purchase record showing £3 discount each month, but that didn’t seem to work either. The mobile line is 100% business, not personal.
You need to be showing the £3 as a refund, not income.
If you did apply vat to it, ie £2.50p and the £0.50p vat, then hmrc, are not going to argue with you, as technically you’re claiming back 50p less vat.
Don’t tag this as income with a sales invoive, but as a refund from overpayment.
Pay o2, and you will be £3 over, refund this back to yourself.
Either enter the bill, and on a 2nd line minus £3, or if that doesn’t work, enter the bill £3 less, pay the original o2 bill, tagged from bank account.
This will generate an overpayment which you can refund back, and tag as such.
The main thing, is to show the money back, is not income.
Am I right in thinking that the O2 bill is for the full amount before deducting the £3 discount? And the £3 is received from someone else, not O2?
In which case, adding a discount line to the O2 invoice won’t work, as their account will be wrong.
Do you receive paperwork from the reseller? Or could you just tag it as “something not on the list” and then code it as a refund to the same code you put the bill? If there’s no VAT on it anyway, it shouldn’t cause an issue with the VAT return.
Are you on cash accounting for VAT by the way, or accruals?
Thanks everyone for offering your help.
You are right, I pay O2 the full amount for line rental and call charges, with VAT accounted for. No problem with any of these.
The £3 discount the reseller gives me and is, I guess, a loyalty reward. Every month this £3 discount shows in my bank account, no paperwork, and no vat applicable.
My accountant suggested logging it as income to have a record to balance it off against. But as I mentioned, it’s not sales. So I was seeking guidance on how best to log these small discount payments,
The automatic VAT return is a related, secondary issue.
When I run the report it pulls the discount into the sales figure. These are small amounts with no VAT applicable so not the end of the world. What I am confused about is that sometimes the report doesn’t pull in the 3 amounts relative to the quarter and sometimes it pulls in more than it should I.e. 5 for this latest quarter. I’m cash accounting for VAT.
Somewhere I’m doing something wrong. And as I face with this issue every VAT period I thought I’d try and fix it.
If you are on cash accounting it could be that the dates are not always e.g. the 5th of each month, so some quarters may have the 3 payments in and an overlap of the payments for the previous and following months.
Or it could be that you are entering the payments for the previous quarter after the VAT return is sent so the payments are entered into the following quarters return.
It appears that it’s more like an incentive payment than a discount. If your accountant has said to treat it as income, then I would follow their advice. No need to raise a sales invoice though, just tag it straight to miscellaneous income as “something not on the list”. For tax purposes it will make no difference; for accounts presentation it’s more accurate but the amounts are not material so I wouldn’t worry too much about it either way.
The VAT issue is separate - you haven’t said whether you are on cash or accruals for VAT as it may make a difference, especially is you have been raising invoices.