Contract clawback clauses

HI all
I have fee-refund clauses in my terms of business for a set period on a sliding scale.
How do I account for this in quick file?
I guess I can always issue a credit note for any amounts refunded, but I’m confused about the VAT element?
Can anyone help with this please?
Do I ahve to pay the VAT due in a givne quarter, and then IF their is a refund of part / all of the fee and VAT, how will I manage that with regards to HMRC and the VAT?
TIA for any help on this
Best regards


I can’t remember if QF has a refund to customer function that will take care of this. I think they have a supplier refund option.

In the absence of the above, I think the simplest way to account for this is to invoice your customer including the VAT, as normal.

The VAT will become payable to HMRC when you issue the invoice (its tax point), unless you are using VAT cash accounting.

You will have to pay that VAT in the following VAT return.

But then for fee-refunds I would either create a supplier account for each client and call it something like “Client A Fee Refund”, or a global Supplier account named something like “Fee Refunds” and treat all the refunds as though you have received an invoice from the customer you are now refunding.

Then in QF you can create a purchase invoice for the refund + VAT.

For example,

You invoice for 100 + 20 VAT
VAT payable to HMRC is 20

Say a month later…
You have to refund 50 + 10 VAT,
Create a purchase/supplier invoice for 60
VAT reclaimable is 10.

You could miss a bit of VAT reclaim if your VAT reporting date falls between your invoice and any fee-refund, but you can reclaim this on your next VAT return.

There is a more involved and complicated way of accounting for this that might be applicable to your situation, which involves an account known as deferred income, but this depends on what you are charging customers for. (Such as work yet to be delivered, an insurance policy with a cooling off period - the nature of what you supply)

There is a explanation of deferred income and VAT treatment at this link and notice that is says there:

Don’t forget that income is deferred net of VAT. The VAT is payable by your client and owed to HMRC at the tax point date of the invoice.

Where it says “The VAT is payable by your client” confused me at first, but I think it means that the VAT is payable by your client if you sell on credit and use accrual accounting (and not the Cash VAT scheme).

Hope this helps a bit :smile:

Personally I wouldn’t do the method you describe.

For the simple fact you’ll end up with over inflated turnover and over inflated expenses.

Although the net profit will be correct, you will to remember to reduce turnover by expense amount before creating proper accounts.

Thanks for your reply Paul.

What would you recommend that Stevep does?

As far as I know, issuing a credit note should account for the vat as well. But I could be wrong.

Hi @Stevep

If you issue a credit note against the invoice with the same date then it will also reduce the VAT for the same period. If the credit is added after the VAT return has been submitted then it will just be adjusted in the next return.

The Alternative would be to credit the invoice in full and reissue the invoice showing the amount refunded as a negative line on the invoice
Hope this helps

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With regards to paying the vat in the quarter and then a refund in another.

If you’re on cash accounting, this won’t be an issue since the vat won’t be added till payment is received and hopefully you’d create a credit note to reduce it prior to submitting the vat return.

I think your kind of business should really be on cash accounting to avoid overpaying vat and waiting for a reclaim

Cash accounting for VAT works best when you also pay your suppliers promptly. If you don’t, and take up a full 30 days or more to pay, then you lose the benefit of reclaiming the input tax on those invoices. It’s not quite so simple as saying if you issue refunds you’d be better off on cash accounting.

The way @QFBeth describes it is the way to go for refunds. A part credit for the amount of the refund is the most straightforward and creates less of a paper trail.

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