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VAT rates for salary/dividends?

Hi there,

I have given my accountant access (we made her a team member under team settings), in order to submit our VAT return, and she has gotten back with the following - see below.

(We have been inserting our payments as expenses, not quite sure if this is the right thing to do…)

Can someone please help out with the below?

"I have one question as I’m having problems locating the list of different VAT rates in your account. The only reason I ask, is that any salary or dividend payments should not be included in VAT returns as these are exempt. But I can see these showing in the VAT report as 0% which is fine. But to be correct they shouldn’t show in any box of the VAT return.

I was just wondering if you could guide me as to where these rates are listed in the software so I can have a look."

Many thanks!

How are you booking salaries and dividends? Vat rates are under company setting>advance settings

You shouldn’t be creating purchases for personal expense or salaries your accountant should know this. They should also know that you need to use a journal which would exclude it from the vat return as well.

thanks for your feedback!

I only just created the team account for my accountant.

I have been doing all things myself up to now, and - for lack of knowledge - had decided to include any directors payments (salary/dividends) in expenses.

Clearly this is wrong.

Please bear with me, but what’s the right way?

Please note, we are a micro business and our directors payments are not always steady. Also we don’t currently differentiate between salary and dividend on the go (when actioning our payments), but rather when doing the end-of-year tax.

Many thanks & have a lovely bank holiday weekend!

Maybe you need to have a chat with your accountant because I’m sure they will tell you that a salary can not be determined retrospectively at year end. Otherwise it wasn’t a salary. That’s hmrc view as well as the definition.

What you can do is allocate salary payments to your dla each month and then reconcile it at year end with a journal.

You should be using journals for the questions you’ve raised, but rather than stepping on your accountants toes by advising the best method to record your transactions, I’d rather you consult with them first. Then come back when advised and I can explain the process of how to achieve it.

Hi Paul,

Thanks for the reply and advice!

Will put this forward to our accountant and get back to you once I’ve heard back.

Thanks again for your help and enjoy your weekend!

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