Refund for VAT Exempt transaction is not VAT Exempt and added to VAT Return

Bug Bug (Solved)
1

To reproduce:

  1. Create a new purchase with VAT Rate = “No VAT” and VAT Options: Exempt selected.
  2. Generate VAT Return calculation - the purchase is not included in VAT calculations (correct)
  3. Create a “Money In” transaction in the Bank Account.
  4. Tag the bank transaction as “Refund from a supplier”. Select VAT Exempt purchase created in #1.
  5. Generate VAT Return calculation - the refund is included in VAT calculations (incorrect).

Expected result: Both purchase and associated refund are not included in VAT Return calculations.

2

There’s a lot of conflicting information out there but the overall consensus as far as my googling goes seems to be that exempt purchases should be included in box 7, it’s only out of scope that shouldn’t. But it seems to be something where different accountants and different people at HMRC give different answers…

The one thing everyone seems to agree on is that it’s unlikely to matter unless you’re trying to reclaim vat in box 3 that’s more than 20% of the box 7 value - this is the main thing inspectors will be looking for.

3

Hi @irreality

I’ve asked our development team to take a look at this today. We’ll update you shortly.

4

Yes, also in my understanding VAT exempt purchases should be included in box 7 but I’ve seen different opinions.

Regardless of the approach I think both the purchase and associated refund behave consistently - so that’s why I am reporting this as a bug.

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5

Yes, the treatment should be consistent both ways. We did however find that in some cases a refund linked from the bank did not correctly inherit the exempt flag from the parent invoice.

We’ve now deployed a fix for this issue, you can PM either @QFMathew or myself with the CN number and we’ll correct that for you, otherwise simply removing and reapplying the credit note will do the job.

Thanks for reporting the details to us.

6

Thanks Glenn. Yes, in my case these were Barclays “Loyalty Rewards” which I register as a refund to monthly fee charge. I’ve just verified and everything works OK now. Excellent support!

1 Like