Vat on prepayments

[KarlC]

Hi, I’m trying to do my first MTD VAT return on QuickFile but the prepayments/payments on account are not included in the VAT return calculation. I am set up on accrual basis and flat rate VAT.
I have entered the prepayment straight from the bank feed and they are showing on the supplier account as prepayments. I have entered 20% vat rate at the time of posting to the supplier account.
Many thanks,
Karl

[ian_roberts]

On accrual basis you can only claim back purchase VAT once the supplier has invoiced you (but equally if they invoice you first and you pay later you can claim the vat in the quarter when the invoice is dated even if you haven’t yet paid).

[KarlC]

I am actually talking about payments from a customer. As I understand correctly HMRC requires to pay VAT on deposits. I have received such deposits from a customer but the system doesn’t include these in the vat return calculation.
Thanks

[QFSteve]

Hello @KarlC

On accrual basis, the vat return will include figures (sales and purchases) only when there is an invoice present.

It is fine to have received money from a customer in advance but you will need to invoice them at some point for the sales to be vatable and show on a return.

[KarlC]

Thanks Steve. I am collecting advance deposits for the next year bookings, so the actual invoice will be raised in 2023. In the meantime I need to pay HMRC vat on those deposits. I guess I can adjust the return manually in quickfile however I am going by the help topic from the help section which says ‘ when collecting payments from clients without attaching them to an invoice, these payments (prepayments) also form part of your total vatable income and are subject to the flat rate of vat levied by HMRC. QuickFile will automatically include such payment on your return.’
Is this feature not active because I am on accrual basis? To be honest I do not see why would it be.
Let me know if I need to manually adjust my return.
Many thanks,
Karl

[QFSteve]

Hello @KarlC

You could do an adjustment on the return (check with your accountant).

QuickFile will not show a prepayment on the return without an invoice.

I would recommend raising an invoice for the deposits as the customer has already paid them up front and the invoices would get picked up on the return automatically.

[ian_roberts]

@KarlC’s point is that under HMRC rules QuickFile should be including unallocated prepayments in an accrual-accounting VAT return anyway, and the fact that it does not do so may be considered a bug.

From VAT: instalments, deposits, credit sales - GOV.UK (my bold):

Advance payments and deposits

An advance payment, or deposit, is a proportion of the total selling price that a customer pays before you supply them with goods or services.

The tax point will be either the date you issue a VAT invoice for the advance payment, or the date you receive the advance payment, whichever happens first.

You include the VAT due on the advance payment on your VAT Return for the period when the tax point occurs.

If the customer pays you the remaining balance before the goods are delivered or the services are performed, a further tax point is created. This will be either when you issue a VAT invoice for the balance, or when you receive payment of the balance, whichever happens first.

You then include the VAT due on the balance on the return for when the further tax point occurs.

i.e. you must pay HMRC the VAT on an advance payment in the quarter when the customer paid you, even if you haven’t yet invoiced them.

However another part of the same guide says that the business must normally issue a VAT invoice within 30 days of a tax point arising, so if you receive an advance payment like this you are supposed to issue a matching invoice within 30 days, and such an invoice will by definition be issued before the deadline for submitting the VAT quarter in which the payment was received (quarter end plus one month plus 7 days).

There are a few exceptions to the 30 day requirement though, in particular if “you’re awaiting VAT invoices from your own suppliers or sub-contractors”, so there are still cases where QuickFile does need to account for VAT on the unallocated pre-payment before it has been invoiced.

[QFMathew]

Hi @ian_roberts

There are always edge cases to VAT rules, unfortunately, and as you mention yourself, there are different rules depending on the specifics of the situation.

It’s not feasible for us to support every case, but we do include the adjustment option on the VAT return which can be used for cases such as these.

@KarlC - Just to clarify, on accrual accounting you would need an invoice to account for the VAT. If you don’t have an invoice, you may need to make an adjustment on your VAT return and make a note of it there.

However, if in doubt, we always recommend speaking with your accountant as unfortunately we can’t advise on specifics (we’re not accountants).