We have paid a £2000 deposit on a car, not VAT invoice or anything yet, it will just be 1 of 2 deposit payments, and then the balance will be paid via HP with Lombard. We don’t have the car yet.
I have payed the 1st deposit last month, and I now need to do the VAT return, and I don’t know how to tag or do the correct accounting for it.
It’s important we account for the car correctly (obviously) as we can 100% offset it against tax in the 1st year as its an EV. And I don’t want to mess up the VAT return.
No unfortunately this is a different scenario. I have paid no VAT - its just a prepayment and when the invoice is produced it will have to be set against it.
I guess I need to enter the vehicle as a capital purchase at full price and then stand the deposit already paid against it, then the balance of the deposit, and then deal with the HP.
But I have no idea where to start ?
You’d probably need to setup some loan account in the bank management section with the opening balance posted to “Motor Vehicles (0050)”. Any subsequent payments made against that loan account can be invoiced as required (with VAT or without) until the bank account NETs to zero.
Capital Purchases are not normally offset against profits, so in terms of claiming tax relief, this would likely be adjusted manually on your Corporation Tax return.
Disclaimer: Neither @QFMathew or I are accountants so I would always recommend seeking a professional opinion.
Thanks Glenn, As the car won’t be invoiced and delivered until April, can I just leave the deposit paid untagged? There is no VAT yet, its just money with no invoice. Can I then run the VAT return and submit it. Then in April set up the loan account and tag the £2k paid last moth to it, or will it be locked as I’ve run the VAT Return ?
Yes you can leave it untagged. When you later tag this payment to a purchase invoice, it will get picked up in the next VAT return.
You don’t need to re-run an earlier return, the new invoice (even though in an earlier period) will be automatically brought forward into the next VAT return.
Solved. Thanks so much. Best. David.
Just to throw in some confusion here. The correct treatment of a hire purchase is as follows:
The list price of the vehicle needs to go to 0050 and be present as a
HP creditor. Then following this you should put the deposit against the creditor and paid against bank account.
The same need to be done for the second deposit. Lastly when the payments start for the HP, the payments need to be spilt between HP interest, which goes to the P&L, and capital payments, which goes to HP creditor.
Just to make you aware you need to include notes in your accounts stating the assets that are on HP and what part of your creditors are secured on the assets of the company.
If any of that doesn’t make sense please feel free to ask.
Thanks Chris, I may ask you exactly how to do these steps when I actually have the invoices and the exact amounts.
Thanks very much. Best. David.