I received a COVID technology grant. I paid the supplier’s invoice including VAT. The grant repaid the net amount, not including VAT. How do I account for this, please? I tried selecting ‘Other’ in the tagging system, but that does not allow for exclusion of VAT.
Can you give an example of the transactions
I.e the grant came in cr
You paid the bill (from where?)
The grant repaid you net or paid the bill? (from. Where)
Once the transaction detail is established it will be easier to advise.
Hi Paul
Conditions of the grant were”
- I send quote etc to grant entity who approve it for funding.
- I receive invoice from supplier and pay it in full : net + VAT = gross
- 2 weeks later the grant entity refunds me the net value of the invoice, but not the VAT
So the total invoice was £2928.80 and UMI Commercial as the grant entity later paid me £2440.67
with thanks
Judy
REH Forks Ltd
Holme Cottage, Appleton le Moors, York YO62 6TE
Tel: 01751 417371
Hi Judy.
Thank you for the explanation. My question was more related to how the transactions took place as opposed to how its paid.
As in, when you paid it. Did the funds come from your own personal account or the business account.
When receiving the grant. Did it go in to the business account or personal account.
Once established I can advise on the accounting entries.
When you paid the supplier, presumably you tagged the payment against the invoice to clear the balance?
The grant you received is income and should be tagged as such and shown as government grant received. It does not go against the supplier invoice.
The VAT you paid will then be recovered in the usual way on your VAT return.
Your profit and loss account will then show income of £2,440.67 and a cost of £2,440.67. You should not net them off.
Hi Paul
Business account in every instance
best
Judy
REH Forks Ltd
Holme Cottage, Appleton le Moors, York YO62 6TE
Tel: 01751 417371
Hi. thanks, but no option on the tagging as Government Grant Received. Unless I tag it as General Purchase at 0% VAT?
best
Judy
REH Forks Ltd
Holme Cottage, Appleton le Moors, York YO62 6TE
Tel: 01751 417371
Hi, it’s not a purchase, it’s income (revenue). You can add a new nominal code/category if there is no suitable option. Make sure it’s within the revenue section - and it’s outside the scope of VAT so not 0%. I’m not VAT registered so can’t see what your options are, but it shouldn’t appear on the VAT return.
I’d tag the incoming grant money using the “something not on the list” option, to either the misc income code or to a new code you create for the purpose under the income section of the chart of accounts.
Hi Ian
Problem with ‘something not on the list’ is it doesn’t give an option to zero rate the VAT. And I’d be taxed on it as income. Unless I set up a Supplier Invoice and try to give the zero rate details on that, then tag it? Would that work to circumvent?
best
Judy
REH Forks Ltd
Holme Cottage, Appleton le Moors, York YO62 6TE
Tel: 01751 417371
www.rehforks.com
“Something not on the list” bypasses the VAT return entirely so would be treated as outside the scope of VAT - only sales and purchase invoices contribute to the VAT return in QuickFile. As @cbstephensaca explained above you should tag the grant received as income and the things you spent the grant on as an expense so your P&L shows the money coming in and going back out again. The amounts balance off to zero so it doesn’t affect your bottom line profit or your final tax liability.
It’s not zero rate, it’s outside the scope - as @ian_roberts says “something not on the list” gives this option.
The income is taxable income - just not VAT-able - but the costs are also allowable expenses, so they will reduce your profit by the same amount. The effect of offsetting the two would be the same in terms of your profit (i.e. nil) but it’s not allowed in terms of accounting.
You can’t set up a supplier for the grant as (a) it’s not allowed and (b) it’s income, not purchases.
Surely the Grant is ‘income’ and the invoice with VAT is just an invoice.
If the grant doesn’t cover the VAT then you will likely have to pay the VAT unless you have an agreement not to pay the VAT?
So the grant just gets marked as income and goes into the Bank account, then you pay the invoice, the balance of VAT you just have to either pay or not?
Dave H
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The grant won’t cover the VAT, likely because the op is VAT-registered and so can claim it back from HMRC anyway.
Hi, I followed your advice, logged it as Other under income, figures came right in the end
much appreciated
best
Judy
REH Forks Ltd
Holme Cottage, Appleton le Moors, York YO62 6TE
Tel: 01751 417371
1 Like
No problem, glad I could help.
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