Apologies if this has been covered and if this gets a little waffly.
As simple as it seems, I’m failing to find a discussion that actually comes to a conclusion on how to address this all within quickfile.
One aspect of my business is being an agent who collects fees on behalf of a client and I would like some help on how to record this all.
The fee owed to my client is deposited into my client account. I then calculate a percentage for commission, transfer that value to my main current account and pay out the remainder to my client. I raise an invoice for my commission and send it to my client.
Previously I wasn’t creating invoices through accounting systems so it was easy to record this by tagging deposits and transactions to/from a dedicated liability account titled “Deposits due to XXXX” and just creating Journals. I could show that I’ve made commission in a sales nominal account easily and whether I owe them or they owe me based on the liability account which I found useful for end of year accounts.
I became VAT registered on 1st NOV so decided to centralise everything to make life easier but it seems like it’s gotten a little tricky to get my head around now.
I do have an agent myself who must have a solution but I thought I would ask here first.
My main issue is that I cannot log a payment against the invoice I raise to my client as there is not an external movement of money from my bank to just tag it.
I don’t want to pay out the full amount received to my client and then ask for some back just so I can tag the transaction to show my invoice as paid. The whole point is to make it easy for them.
I thought about creating the invoice and then logging against it a credit note however I am not convinced this is the best way to do it as surely the credit note cancels out values recorded in the ledger accounts. It also zeros any VAT recorded that I would be due to pay HMRC? Correct me if I’m wrong.
So to summarise, I just want to know what the best way to do this is so that my invoice shows as paid, my commission income ledger/nominal account shows I have had some income from my client and the VAT is recognised for sales tax that I will owe.
I see myself going back to spreadsheets to make this all work and just creating these specific invoice externally which is what I want to avoid.
Nope, my client doesn’t issue me with any invoices. They have nothing to invoice me for as the money always belongs to my client and never to me.
I am simply an intermediary between my client and the person/organisation requiring my clients service.
If the money you’re collecting and passing on to the client definitely doesn’t count as turnover that would have to go on your own VAT return, then it should just be a case of creating another dummy bank account in QuickFile for “client money” or whatever you want to call it. When you collect money from a customer you tag that as a transfer from “client money” to your collection account, when you pass money on to your clients (less the fee) then that would be a transfer the other way. This will leave the “client money” account overdrawn by exactly the amount of your fees, which you then account for with a sales invoice that you mark as paid into “client money” to bring that back to zero.
This is essentially the mirror image of what you do when you take payments via a merchant account like PayPal and receive the money net of the payment handler’s fees - in this case you are the handler.
But given there’s VAT involved I would definitely talk to a real accountant and/or HMRC about whether the money you’re collecting actually counts as turnover that you’d have to charge VAT on.
Hey Ian,
I’ve got it now (I hope), thanks for your help.
I was trying to figure it out without having actually transferred the commission I had deducted from my bank client account to my current account, so I couldn’t tag it to the invoice i created.
I was trying to figure it all out in my head with an example where there was no the end transfer. d’oh
So to clear up for anyone else, what I have done is created the virtual/merchant account as you said and used it as a processing account for my commission.
Do not allow auto-tagging of any transactions when you upload your bank statements
So the full deposit, say £100, from the customer comes in to my client account, I tag it to my nominal liability ledger I created called “Deposits due to XXXX (1104)” as it needs to be tagged to somewhere and it is also not my money.
My commission in this example is 20% (incl VAT) so I created an invoice to the client for £20 (£16.67+£3.33 VAT).
The balance of £80 is paid out from the client account to my client leaving my £20 commission remaining in the client account.
I transfer the £20 commission to my current account and this will show on both statements.
But on QuickFile I don’t tag these as a direct transfer to one another.
I tag the incoming £20 on my current account to the invoice raised which solves the VAT accounting issue (as £16.67 appears on my commission income, the rest goes to VAT sales tax).
Then I tag the outgoing “transfer to current account” £20 on my client account as a transfer to the virtual account.
Then create a money out transaction in the virtual account for the £20 and tag it to “Deposits due to XXXX” using the ‘something else’ tag to bring the balance of it to zero.
And that’s it! £20 Invoice shown as paid. My commission income nominal account shows I have made £16.67 income. The £3.33 goes towards the sales tax VAT calculations and my “Deposits due to XXXX” shows each aspect of the process so I know if I owe money to my client or if they owe me. (This case it zeros out)
And I don’t have to use a spreadsheet!
I will still run it past an accountant though.
With regards to the money collected, my turnover is only the £16.67 so I’m only accountable for VAT on that. Not the full £100 which is actually XXXXs turnover.
The sale is between XXXX and the customer. It is made on behalf of XXXX by me so the money always belongs to them even though it goes through my bank.
The £20 (£16.67+£3.33 VAT) is a separate cost for my service.
Again, I also have an agent who does this same process for myself ha, so in that aspect of my business I can be XXXX.
The way I deal with this is like how you have said with paypal. I also do that in QuickFile for my actual Paypal account also. I just wasn’t thinking.