Cash accounting.
Van purchased on hire purchase for £24k with £5k deposit paid through bank. No supplier or purchase invoice raised as I’ve entered the van addition via journals. However, input vat and net cost does not show in boxes 4 & 7.
I assume QF can’t pick -up entries on the vat return through journals then ?
What’s the best way to ensure the correct amounts are shown in boxes 4 & 7 to reflect the transactions ?
Hello @Pete7
That’s correct. Although the VAT return will pickup VAT from prepayments as well as invoices.
I would certainly run your scenario past your accountant to ensure it’s all correct, but there are a few previous posts on the forums which may be of some help:
I am the accountant. This is a Quickfile client. I am new to using QF.
I need to claim the £4k input vat but can’t work out a way to show the net cost of the van (£20k) in box 7.
Cheers
Am I correct in assuming then, under cash accounting, that the only way input can be claimed is when an actual payment is tagged to an invoice ?
If this is so, it may be worth adding a payment allocation method of “Hire Purchase” account to the drop down next to “Director Loan Account”. As in reality the purchase invoice for the van has actually been paid via the HP company.
Yes, although the VAT return will also pickup VAT on prepayments (i.e. funds allocated to a supplier, but not yet attributed to an invoice). I’ve modified our last post to clarify that point.
In this scenario what you would typically do is locate the £5,000 on the bank and tag it as a supplier prepayment.
Now when you run the VAT return it will include 20% of the £5,000 as input tax. When you later allocate that prepayment to an invoice, it will compare the VAT on the invoice vs what has been paid already and adjust if necessary. In most cases no adjustment is needed as the invoice will have the same effective VAT rate.
I hope that clarifies, please let us know if we can be of further assistance.
The way you’d do that is to treat the HP company like a bank loan - create a dummy bank account for “hire purchase”, mark the 24k purchase as paid in full from that account, the 5k deposit and any subsequent payments to the HP company would simply be transfers between bank accounts. The (negative) balance on the HP account at any point is the amount outstanding on the loan. Interest would be “money out” of the HP bank account tagged to the relevant nominal (or you could split the bank payment as part interest to P&L and part capital repayment to the HP account).
Glenn, I don’t think that will work. I need to claim the £4k input in full on this VAT return not 20% of the £5k deposit.
The only way I can see a “workaround” is to raise a purchase invoice for the full cost (£24k). I have then paid this invoice in full via the DLA. This way the £4k input is claimed and the £20k net cost is included in box 7 because the supplier invoice has now been tagged. The only thing I now need to do is journal the net cost from DLA to hire purchase account.
This is why I suggested you add a “paid by hire purchase” option next to “paid by DLA” on the payment allocation drop down. This would mean the invoice could be allocated in full immediately and the HP entry would be made thus avoiding an unnessary journal from DLA to HP.
As I say, the original purchase invoice has in reality been paid, just by the HP company.
Not ideal but seems workable.
Similar to what Ian has said above but you shouldn’t be forced into creating a dummy bank account to deal with this type of transaction as it’s quite common. There should be a simpler option.
It’s a bit of a faff to be honest and something a client would have trouble sorting.
I suppose you could make a direct adjustment on the VAT return (see here). Although I would use a loan type bank account as per Ian’s suggestion, this way you’re tracking the liability without the need for any additional journals.
