Error in consolidated invoice and system

[apulman]

For all of last year I was raising consolidated invoices for stays at my hotel at the end of the month, I was using the bulk posting of invoices function for the client in this case Dolly Guest. so reconciling 2012 to submit my financials a very strange thing has happened to all the invoices entered last year.
I will give you an example invoice against dolly guest Invoice: #000008

This september invoice included invoices where deposits were taken by third parties which would be payed later, I have to account for Vat at the sale so I have invoices that would say total invoice 40.85 vat 22, that is because £98 was taken on-line as a deposit and is paid approc 4 weeks later.
So this means at the end of the month the total of the invoice was

15140.19 the net was 12098.36 and the vat was 3041.83, fine last year it posted, the vat went correctly to the sales tax control account as 3041.83.

however when you now click on the invoice you get no vat being displayed and the system reports an invoice value of 12098.36 no vat and an overpayment of 3041.83.

H E L P !!!

this is on every invoice, my Vat returns submitted were based on the Vat on the control file, but the audit has just raised no vat showing on invoice!!!

two questions: one how do I sort this out for past entries; two how do I put these invoices in in the future.
My accountant says the invoice created from the hotel system is correct as the Vat is due at point of sale no matter that I have not received the deposit and the deposit is then booked in with zero VAT, when it arrives.

[apulman]

Just want to expand on above,
If you drill down into the debtor control account (1100) and go to the invoice for september, the invoice total is 15140.19 so all the postings, the one to sales(4000), the one to VAT(2200) and the one to debtor control(1100) are correct the posting of the payment is equally correct it is just the invoice that shows wrong

[Glenn]

We did identify a problem when using the bulk entry form, if a VAT amount is manually entered but the rate is set to an amount which is higher than what the rate would allow this anomaly would arise.

We will adjust these invoices now (we’ve identified 4) and a fix should be applied to the live system at some point today.

[Glenn]

It would appear these sales invoices have an effective rate of VAT that is greater than 20%. Some have an effective rate of 28% which is preventing us from correcting the data. Is there a reason for this?

[apulman]

yes they are for a stay when a deposit was taken on-line but payment has not been recieved from the on-line service providor, the note is in the second response to this query,

just curious why the invoices do not display correctly will that be fixed to?

[Glenn]

The only way to correct those invoices is to set the VAT rate at 20% (We can do this for you if you like?). The bulk entry form should never have allowed an amount that exceeds 20% to be entered. If you really want to pay HMRC over 20% then the difference will need to be entered as an adjustment on the VAT return. I checked with our accountant and there shouldn’t really be any scenario where you’re paying more then 20% in VAT. Also if you try to file the return with HMRC and it has an aggregate effective VAT rate that exceeds 20% they will likely issue a warning.

Let me know if you’d like me to correct those invoices?

[apulman]

Please check with your accountant I can send a copy invoice the issue is where the guest has paid a deposit which is taken by a third party the third party will send the deposits as cash with no VAT on them. Therefore the invoice shows the amount received from the guest and the total vat on the transaction
e.g

Invoice to miss Emily moulson 8-april 2012 inv number AA101643
Room booked for 3 nights at £94.00

Invoice items:
Room 20% vat 282.00
Deposit taken on line 0%vat -£94.00
Bar drinks 20% vat 27.35
Payment received 215.35 (total - deposit)
VAT included £51.56

Vat to show on Bill according to HMRC £51.56 as the zero rated deposit is ignored for VAT purposes so vat is calculated on gross without deposit = £309.35 giving VAT of £51.56 not £35.89 which is what you would have got if you calculated it on the payment received of £215.35.

I understand this is how all on-line deposits work and my guests key these into there computer systems correctly (business that is)

where do we go from here If I have to journal I will but it is wrong, on filing returns I have been doing so for 5 years and this happens all the time some months it can be as high as 23% and others as low as 18% they understand completely and expect it. it would happen all the time if a company sold zero rated items or 5% fuel items as well as 20% items e.g ASDA or British gas.

Also as some of your other clients will use booking sights to book hotels this would also need to work on the purchasing side, this must have come up or are expenses being aggregated up on the whole so when the deposit and invoice are combined it comes out correct??

just to finish basic accounting systems like sage 50 allow this i.e.

When you’re raise the invoice, you double click on the line on which you would type in the invoice details, etc. This opens a new dialogue box into which you can enter more details for that line - in this dialogue you can enter the VAT without a net amount.

Vat only invoices and vat in excess or lower than 20% or 5% can be entered in almost all accounting systems I know

A quick fix that might allow us to get these in but under control to prevent accidents would be to add in a 100% vat code into your system, this would allow a invoice to be entered with a vat only line which would bring the invoice into balance and might only be a master data change rather than re-programming.

[Joe]

Although we cannot advise on accounting matters and would recommend that you refer to your accountant for further advice, we have explained theoretically how the scenario would work on Quick File.

You may also want to refer to the HMRC guide on ‘Hotels and holiday accommodation’.

If a third party is marketing the room and taking a reservation fee, then booking / reservation fee paid by the client is funds held on account. If you decide to post the payment without VAT at the booking/reservation stage, this can only be done if the reservation fee received from the third party is not an advanced payment, otherwise you must account for VAT in the return period in which you receive the payment. Therefore, once the booking has been completed a VAT invoice will be raised and the reservation fee paid, at this stage will used used as part payment towards the invoice.

See the example below:

Using your figures:

Invoice items:
Room 20% vat 282.00
Deposit taken on line 0%vat -£94.00
Bar drinks 20% vat 27.35
Payment received 215.35 (total - deposit)
VAT included £51.56

Step 1: Log the Deposit Taken:

• Create the guest account by clicking ‘Create New Client’:

• Once the guest account has been created, click ‘Return to the client management area’:

• From there click ‘Add Credit’ and enter the £94.00 with ‘No VAT’ as account credit, select ‘Petty Cash’ as the ‘Paid to Account’ if you received cash from the third party, enter the date of the transaction and payment method as shown in the example below:

Step 2: Raise VAT Invoice on Check-Out:

• Raise the full invoice as shown in the example below:

Step 3: Log the Deposit Taken Against the Invoice:

• Finally, click ‘Log a Payment’ to use the credit posted in Step 1 above, as shown below:

CONCLUSION:

You are now able to see that the correct VAT invoice has been raised and the deposit / reservation fee has been applied accordingly, if you return to the invoice after logging the deposit / reservation fee, you are able to see that the remaining balance to pay by the guest is correct:

[apulman]

Hi been through this with HMRC will get the relevant notes and guidance for you if you are interested on delayed deposit taking via a third party, since it takes up to 6 weeks for deposit to be paid by online aggregator, this will make other parts of my accounts look a little strange, also The deposit will not be paid or has not been paid by the guest it comes from the aggregator so they cannot recover it from me.

Is there not the possibility for a 100% vat code in master data which would therefore allow for VAT only lines to be added to invoices and therefore the system to run as it did last year and still be safe for others to use all checking still work.

I do thank you for looking into it in such detail but

“If a third party is marketing the room and taking a reservation fee, then booking / reservation fee paid by the client is funds held on account. If you decide to post the payment without VAT at the booking/reservation stage, this can only be done if the reservation fee received from the third party is not an advanced payment, otherwise you must account for VAT in the return period in which you receive the payment. Therefore, once the booking has been completed a VAT invoice will be raised and the reservation fee paid, at this stage will used used as part payment towards the invoice.”

The third party is taking a deposit on our behalf from the customer reservation fees are handled differently,
so this is a deposit in the third parties client account, cannot post it at the booking stage as I do not have the funds! since there is a cancellation period of 48 hours on rooms it is a deposit not pre-payment, The VAT is recognized when the guest books out as because of the expiration of the cancellation period the deposit now becomes treated as a pre-payment under VAT as you are contractually obliged to receive it but it is a debt with the third part even if the funds are not received yet. It is also interesting as if the client does not cancel and fails to turn up then the whole deposit in non-vat-able. Not sure why but in the hmrc guidance.

Eviivo processes and produces all our invoices they have 4000+ customers who’s invoices all work the way ours do.

is there really no possibility of a 100% VAT line code which would solve this problem and VAT only invoices and a whole lot more, Please?

[Glenn]

If you’re using a deposit aggregator this (in bookkeeping terms) is a similar scenario to say if you were using PayPal or some other deferred merchant service provider… they are collecting your funds then paying you a lump sum later down the line. So in this case create a bank account called booking deposits (or something similar) and bank the deposits there. As long as you don’t tag them they won’t raise any VAT. Then when the client settles the bill link the deposit to the invoice. Any transfer from the deposit aggregator to you would be expressed in Quick File as a transfer from the deposit account to your current account which will round everything out.

Also this way you get to see all your outstanding deposits and this will correctly reflect on your balance sheet as an asset.

[apulman]

I am really sorry I raise over 3000 invoices a year the way you describe the VAT liability does not change state during the life of the transaction as it does with refundable deposits.

THE RELEVANT HMRC NOTE:
"
VATTOS2225 - Legislation: UK primary law (VAT Act 1994): Section 6(4) Advance payments and invoices
Law

(4) If, before the time applicable under subsection (2) or (3) above, the person making the supply issues a VAT invoice in respect of it or if, before the time applicable under subsection (2)(a) or (b) or (3) above, he receives a payment in respect of it, the supply shall, to the extent covered by the invoice or payment, be treated as taking place at the time the invoice is issued or the payment is received.

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Commentary

For both goods and services a tax point is created by the receipt of a payment or the issue of a VAT invoice in advance of the basic tax point. The only exception to this is where a payment is received in advance of the ‘adoption’ basic tax point under 6(2)©. Where a tax point occurs under section 6(4) the supply is deemed to have taken place to the extent of the amount paid or invoiced. In other words there will always be a further tax point where the amount invoiced or paid is less than the full value of the supply. For further information see VATTOS5120 and VATTOS5200."

So if i Receive the deposit before the booking a tax point is created and VAT liable but ince in the majority of cases it is recieved a month or so after the tax point is triggered by the creation of the invoice to the guest

I assume it is not possible to put a 100% vat code into your system that I could use to continue as I have for the last two years.
Hospitality, The construction industry and many others have reason to raise invoices where the Vat is higher than 20% My accountant I talked to today sited construction companies that have been told to invoice VAt on staged payments after they have been sent out so have to raise invoices that are higher than 20% I have checked the help systems on line for the following which all provide the facility
Netsuite
SAP
Oracle Finacials
Peoplsoft
JD edwards
Sage
Tetra
Sage
exchequer
Xero

all of these allow tax adjustments so people must need it not just me!
If it is really not possible to have a vat only line e.g. 100% vat code or to have the function as it was for the last 2 years to adjust the invoice I am stuck! none of the workarounds you have given will work, and after 2 years of thinking this is a great system I will probably have to fiddle it and plan to leave which is no issue for you but I believe this is a function a pragmatic person would see people need with no real downside

[Glenn]

It may be possible, but any such change to the way the VAT system works will need careful consideration and is not likely to be rolled out within a few days. We would need to put this into our development queue and it would need to be reviewed and carefully tested before being implemented.

We have close to 20k businesses using Quick File now, I would say that what you’re suggesting is not that common, otherwise we would have heard about it, you can search the forum and see for yourself…I was unable to find any reference to this problem. Perhaps others in a similar situation are accounting for the VAT slightly differently, the system you are using seems odd as really the balance of the deposit aggregator needs to be held in a separate account, otherwise your not correctly tracking this as an asset on your accounts.

I have however referred this to our development team and we’ll update this thread when we are able to review this.

[apulman]

thank you for considering it