Hi. I have holiday lets and am VAT registered. I get some bookings from third parties who take the full payment from the customer, charge commission + VAT on that, and pass on the rest to me. As an example figure, they take £720, charge £100 + VAT = £120, so I get £600 paid into my bank, which is accounted as £500 + VAT.
In effect I am paying a total of £120 VAT (£20 + £100) on the sale, even though I only get £600 income. Can I claim back the VAT that I have effectively paid on the commission, even though it has not passed through my hands - ie the £20 in the example above?
So you have invoiced your customer for £600+VAT, which you represent in QuickFile as a sales invoice for the full amount. Your agent has charged you £100+VAT as their fee, for which they must have sent you a VAT invoice, and you would record that invoice in QuickFile as a purchase.
To handle the payment you need a dummy “merchant” bank account - log payment in full for the £720 sale into the merchant account, and log payment in full for the £120 purchase from the merchant account. When the £600 net payment from the agent arrives in your current account, tag that as a bank transfer from the merchant account to balance things out and return the merchant account balance to zero.
Thanks Ian, that sounds like I can claim the VAT back, which is great, and it is possible to account for it on QuickFile, though I need a little more help on how to do it please…
What I do at the moment is simply log the payment as an invoice for £500+VAT, as that is what I receive from the agent.
So going forward:
1. I create a QF invoice to the agent for £600+VAT;
2. then in the merchant account (which I have just created), I log £720 ‘money in’ and £120 ‘money out’?
3. And for payment of the above invoice, how do I ‘tag’ a £600 payment to the merchant account? Does this mean the system calculates my income as £500+VAT (and NOT £600+VAT?)
4. Do I also create a QF payment to the agent of £100+VAT? And does that need annotating as ‘paid from’ the merchant account?
Thanks Steve, but this seems to be for agents rather than landlords/property owners receiving income from an agent AFTER they have taken off their commission+VAT…
I think I have another response explaining how to do this, but any further advice very welcome.
Your incomeis £600+VAT, and that is what you invoice to your customer (the tenant). But you also incur a “cost of sales” of £100+VAT for the agent’s fee, so your final gross profit on this rental is £500 (the VAT was never yours to begin with, you’re just collecting it on behalf of HMRC).
So going forward:
You create a QF invoice addressed to the customer for £600+VAT; you don’t necessarily send this to the tenant, as I presume they get their correspondence from the agent
for payment of the above invoice, click the “log payment” button at the top of the invoice preview page, and select the merchant account as the place where the funds were received
You also create a QF purchase to the agent of £100+VAT for their fee, and as with the sale invoice you log payment from the merchant account (either by ticking the “paid” box on the purchase creation screen or by using “log payment” the same as with the sales invoice)
When you receive the net payment from the agent you simply tag that as a “transfer between accounts” - there’s no payment from customer happening at this stage, that was already dealt with when you logged payment against the sales and purchase invoices
If I understand correctly, because the VAT I pay on the commission has to be logged as a ‘cost of sale’+VAT (£100+VAT) for earning the full and logged customer payment (£600+VAT), the net result is the same as if I simply logged the income as what I receive from the agent (£500+VAT).
I think therefore the conclusion is that I cannot simply claim back the VAT I have paid on the commission (ie without logging the £100+VAT as a payment)
The bottom line net on your P&L is the same yes, but it shows differently on your VAT return. Recording just the 500+VAT net settlement would show box 6 turnover of 500, box 1 sales VAT of 100 and zero in boxes 7 and 4. Recording the sale and the commission separately will show the correct 600 in box 6, 100 in box 7, 120 in box 1 and 20 in box 4.
Yes I can see how that will happen, thanks very much.
Interestingly, not all agents give invoices for their (pre-taken) commission, so it is quite a job to get all the info together. s a result, they will have it as an income, but most owners/hotels won’t have it as a income/cost. I guess it’s an accounting quirk, almost.
Thanks for all your help on this, have a great weekend.