Supplier Credit Note - to hold on account

Hi,
I wonder if you will be able to help.
My client originally paid for an invoice personally when she started her company. The invoice has been input onto quickfile and the payment has been allocated to her director loan account.
She has now received a credit note for this invoice which will be paid back in 4 instalments. I have clicked on the original invoice and raised a credit note. However, when I click on the option to hold on account it creates a payment from her directors loan account. Why is this happening? It also then feeds onto the VAT return in full but she in on VAT cash accounting so only the first refund which has been paid should go onto the VAT return.
What do I need to do to correct this?
Thanks

Hi @Letitia

When you create a credit note from a paid invoice, similar to this one:

you will be prompted on how to handle the refund:
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You can change the bank account and the refund method here to whatever you wish - it’s not restricted to the account it was paid from. However, given that this will be refunded in 4 installments, I would opt for the Hold funds on supplier account option.

This saves the balance as a prepayment against the supplier:
image

The reason I suggest opting for this one is because it’ll be split down. If it was a whole refund then the bank option would be the better one. Using this method gives you a bit more control over the actual refund of the cash itself. On the same supplier, click View >> All payments, and this will show any payments associated with this particular supplier, including the credit note:

If you then view that payment, you have an option to “Refund Balance”, which will create a bank transaction for you:
image

Simply use this option for the 4 installments, using the dates and the amounts to match the bank statements.

In this case, on cash accounting VAT, it’s moved the balance on the calculations download. Whereas before it was accounted for as a “Purchase”, it’s now moved it to “Supplier pre-payment”, and will account for the VAT correctly when it’s reallocated or refunded in the future.

I hope this helps!

Hi
Thanks for your message.
I am use to raising credit notes on quickfile and I have re-followed your message but this is exactly what I did before but I am still presented with the same issue.
The full credit note is showing on the VAT return purchases section, and in the prepayments section there is an adjustment for the remaining outstanding balance (but no VAT adjustment.) So, the box 7 value on the VAT return is fine, it is the net VAT position which is not.
It is currently showing my client needs to pay the full value of the VAT on the credit note to HMRC but as she is on cash accounting surely she only needs to repay the VAT that relates to the first instalment that she has received?
I’d appreciate if you could look into this.
Thanks
Letitia

What should be happening here is the credit note refund would be moved to the suppliers prepayment balance. As far as the system is concerned, the VAT from the invoice (which has already been paid), has been moved from an invoice to a prepayment.

As you rightfully say, when the refunds are made to the bank account, then the VAT will be adjusted.

If you are seeing something different to this, would you mind sending me a few more details in a private message please, and I’ll take a look into this for you?

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