My one man company has a flat which it rents out. It has been receiving for some years now the rent payments net from agent after deductions like management fees (inc VAT) are deducted. So, I’ve been generating Invoices in Quickfile for the net rent amount with VAT 0% because no VAT is charged on rent. However, I realise now that means the generated VAT returns don’t include the expenses like management fees which charge VAT. Over the last three years I’ve missed out on claiming for £2,000 worth of purchase invoices for which I could have claimed £400 VAT back.
I understand I can correct this in my next VAT return but how can I make this change in Quickfile so that the VAT Return is generated correctly and can be reconciled with expenses?
So I get from agent a payment of £1,000 - £120 - £240 = £640
Therefore I generated in Quickfile an Invoice for £640 with 0% VAT.
What ideally I should have done is create three invoices in Quickfile, one Sales Invoice and two Purchase Invoices. That way the VAT return generator will generate the VAT Return correctly.
How can I fix this now? Can I retrospectively split the old sales invoice to a new ‘gross’ sales invoice and two new purchase invoices dated in the past? They would need to reconcile (tag) with a single bank statement transaction for £640 (net income).
It’s a bit of a headache so any advise on how to fix this would be much appreciated.
The process for recording rent in terms of sales (rental income) and purchase invoices (fees etc) is detailed in this thread. This should help you going forward.
With regards to making retrospective changes, The old invoices will be locked as they have been reported on vat returns. I would reccomend speaking to your accountant for professional tailored advice as it is not something the support team could not comment on as we are not registered accountants
POSSIBLE SOLUTION?
Thinking about it, I’m wondering if I could, in this current period, create new credit notes now for old (net) invoices from 3 years ago and recreate a new Sales Invoice and new Purchase Invoices (with VAT) which together would match the credit note amount meaning no balance to tag against bank statement which is correct because there is no new bank statement transaction.
Then hopefully the VAT Return generated by Quickfile and submitted to HMRC will include the VAT to claim back.
I would reccomend speaking to your accountant as I am unsure what you would be able to claim from prior periods.
As I mentioned we are not registered accountants, another thing to consider is if you are on cash accounting or accrual accounting as with cash accounting the the payment dates are used as the tax point.
I will leave this thread open as there are some accountants on the forum who may wish to comment.
The credit-and-re-invoice method would certainly work in technical terms, but you should definitely double check with an accountant as to whether it’s actually allowed. I know there are time limits on claiming back VAT for purchases made prior to registration but I’m not sure about whether there are any similar limits on claims for VAT paid since registration that you failed to claim at the appropriate time.
Hi Ian, Yes I checked with accountant who confirms I can go back 4 years.
I also have a similar issue with current invoice I received this period. I’m using sample figures for simplicity but the situation is this:
The loaded bank statement has a single transaction for £230
That is actually a net amount of rental income minus expenses.
In QF I manually create:
Sales Invoice - Rent income £600 VAT £0
Purchase Invoice - Management Fees £100 + £20 VAT = £120
Purchase Invoice - Service Charge £250.00 VAT £0
Those 3 Invoices net to £230.00 but how can I tag them to the single line bank statement transaction of £230 ?
My post that @QFSteve quoted above covers this - basically you have to treat the £230 that you received as a bank transfer from a holding bank account, then log all the sales and purchase invoices as paid into/from that same holding account to net off.
Thanks for that. I’ve followed your instructions and have now created and paid the new Sales & Purchase Invoices logged against my new contra bank account which balances to zero. So all good now. The new generated VAT Return will now hopefully pick up and declare the VAT paid in purchase invoice.
So I’m now sorted going forward.
I’ve just left an email with my accountant to double check it’s okay for me to create credit notes now for old netted invoices going back to Dec 2022 and then recreate new Sales & Purchase invoices dated now, paying same way as above. Only 5 invoices so not too much work.
I’m assuming when/if I create credit notes against old invoice, it will release the amount back to untagged in banking , allowing me to tag against new contra bank account.
When you create the credit note from a paid invoice you get the option to either hold the funds on account or refund them from a bank account - if you select refund and choose the contra bank account then it’ll create a pre-tagged money out transaction in the contra account for the net amount, leaving the contra account overdrawn by that net.
Then you create the replacement (full value) sales invoice and log payment into the contra account. Again this creates a pre-tagged transaction for the incoming “payment” leaving the contra account with a positive balance equal to the value of the deductions (including VAT).
Then you create the purchase(s) for the deducted charges, and log payment from the contra account. This should return the contra account balance to zero.
I’m just thinking, can I date the new credit notes and new invoices (and payments) the same dates as the original invoice dates or do they have to be date in current period to be picked up by generated VAT Return report?
The VAT return would pick them up if they were back dated to the original dates in 2022, but that might not be possible if you’ve already closed that accounting year as you can’t create any entries dated before your QuickFile account lock date.
If you were to back-date the new items to 2022 it would change your P&L for that year (because the VAT you paid on the purchases will move from P&L to the purchase tax control account on the year end balance sheet), so if you’ve already used the current figures for a SA/corporation tax return then it’s safer to do the adjustment in this year.
I don’t know if I’ve technically closed the accounting year in Quickfile (how do I do that?) but the accountant has already submitted the accounts for prior years.
Okay, I won’t back date the new credit notes & invoices then. I’ll set the dates to current period. Thanks.
Just a quick message to say all new credit notes & sales/purchase invoices have now been created and declared in the VAT Return which was submitted via QF to HMRC yesterday which was deadline day. Just in time.
@NickW : Are you charging VAT on rent, if yes you can not. Residential properties rent are exempt supply. Therefore, VAT charged by Management Comapny not recoverable.
You should contact accountant.
It is a residential property so the tenant is not charged VAT for rent. The company has a mixture of residential and commercial properties with no VAT charged for the residential but VAT is charged for the commercial ones.
Are you saying I can’t recover VAT for expenses incurred managing & maintaining the residential properties?
I spoke to my accountant but that was more to do with whether to backdate new invoices or not which is different issue. I explained my scenario but he just said new credit notes & invoices must be in current period. He didn’t say anything about not being allowed to recover VAT.
Yes that is correct? The VAT in question relates to exept supply made (rent charged). You should ask your accountant who has indepth knowledge of VAT Land and Property. This is complex matter, involve exempt supply, HMRC’s VAT de minimis rule: Partial exemption (VAT Notice 706) - GOV.UK) and OPTIN for vat on commercial property by property.
Thanks for alerting me to this. I’ve just emailed my accountant asking this specific question which maybe he didn’t consider before.
If he says I can’t recover VAT, I suppose that means I’ll have to undo all those credit notes I raised against the old original invoices by creating more credit notes against the new VAT charged invoices and then re-creating new zero VAT invoices to be like the original ones.
Indeed. It depends how much of your income is exempt (residential) vs taxable (commercial, where you have opted to tax). If that proportion is non trivial - or more precisely if the input VAT directly attributable to the exempt income plus the appropriate proportion of the vat you pay on your general overheads is over a “de minimis” threshold - then you may have to start considering adjusting for the vat you reclaim on your other overheads as well. Google “partial exemption” for the gory details.
If this flat is your only exempt income and it’s a relatively small amount compared to your VAT taxable income in any given quarter then you might be ok anyway, your accountant will be able to advise for sure based on your actual figures.