VAT period and sales


J

John P

I am a little confused over an issue with VAT.

My business sells stuff over the Internet to customers. In addition to
credit card sales (which are deposited the next day into our bank account)
we have a few other payment methods, which involve third parties who pay us
at a later date. The third parties act transparently to the customer (who
assume they are paying us direct).

The third parties pay us via self-billed invoices (less their transaction
charges) and these follow one month and two months following the sale period
for the two respective companies. So for sales made between 1st and 31st
July, we might get one batch of payments on the 4th August and another batch
on the 15th September.

The way we have been entering these onto Sage is;
- credit card revenue recieved during the month is entered as one bulk
amount at the 31st of each month
- the self-billed invoices are entered with whatever date is on the
invoice - say the 2 dates above

This often means that the VAT is paid from different periods.

I am wondering if this is wrong; should the VAT be treated as being due from
the actual 'sale' date, even though we have not physically received the cash
until one or two months later? We do not do cash accounting.

It also causes a bit of a headache when it comes to doing P+L reports, since
the ones Sage prints have to be manually edited to 'move' the delayed
receipts back one or two months. Any way around this? Using another nominal
account to accrue for the money due, or something? We are never sure of the
exact amount until we recieve the self-billed invoice.

Hopefully this makes sense; would be grateful for any pointers!

Cheers
John
 
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P

Peter Saxton

I am a little confused over an issue with VAT.

My business sells stuff over the Internet to customers. In addition to
credit card sales (which are deposited the next day into our bank account)
we have a few other payment methods, which involve third parties who payus
at a later date. The third parties act transparently to the customer (who
assume they are paying us direct).

The third parties pay us via self-billed invoices (less their transaction
charges) and these follow one month and two months following the sale period
for the two respective companies. So for sales made between 1st and 31st
July, we might get one batch of payments on the 4th August and another batch
on the 15th September.

The way we have been entering these onto Sage is;
- credit card revenue recieved during the month is entered as one bulk
amount at the 31st of each month
- the self-billed invoices are entered with whatever date is on the
invoice - say the 2 dates above

This often means that the VAT is paid from different periods.

I am wondering if this is wrong; should the VAT be treated as being due from
the actual 'sale' date, even though we have not physically received the cash
until one or two months later? We do not do cash accounting.

It also causes a bit of a headache when it comes to doing P+L reports, since
the ones Sage prints have to be manually edited to 'move' the delayed
receipts back one or two months. Any way around this? Using another nominal
account to accrue for the money due, or something? We are never sure of the
exact amount until we recieve the self-billed invoice.

Hopefully this makes sense; would be grateful for any pointers!

Cheers
John
You shouild post the sales in the month they were made. Show them as a
debtor until the money is received.
 
J

John P

[x-posted to uk.b.a. which I should have done in the first place, basically
I am trying to work out if I need to post sales made in the same month even
though the customer pays a third party and the third party pays us via
self-billed invoice one or two months on]

You shouild post the sales in the month they were made. Show them as a
debtor until the money is received.
Thanks Peter. The problem with doing that is that we don't know the actual
payment amount until we get the self-billed invoice. We can guess at the
approximate amount, but it won't be what we get paid. I wouldn't want to put
in VAT amounts etc. until I was sure of the exact amount.

Does the fact the customer is paying a third party rather than ourselves
change anything? I suppose the customer will be unaware this is the case.
i.e. the transaction actually takes place between the customer and the third
party, who pay us a lump sum for a particular month at a later date.

Cheers
John
 
B

BT

John P said:
Thanks Peter. The problem with doing that is that we don't know the actual
payment amount until we get the self-billed invoice. We can guess at the
approximate amount, but it won't be what we get paid. I wouldn't want to put
in VAT amounts etc. until I was sure of the exact amount.
Your VAT liability will be on the selling price, not the payment
you receive from the credit card company. So if you know you've
sold 100 widgets at 11.75 each, and you pay 5% for the
transaction processing, you'll get 11.16 per widget, but your VAT
will be 1.75 per widget because the value for VAT was 10, not
9.5.

If you don't know the amount of VAT you owe to Customs & Excise,
you can estimate it. This however should not be a regular
occurence and needs the approval of Customs & Excise before you
do it. You have to adjust the estimate on the next VAT return to
ensure the correct amount of VAT is accounted for at the earliest
opporunity.
Does the fact the customer is paying a third party rather than ourselves
change anything? I suppose the customer will be unaware this is the case.
i.e. the transaction actually takes place between the customer and the third
party, who pay us a lump sum for a particular month at a later
date.

No, it doesn't change a thing. If you're paid by cheque or in
cash, you pay bank charges for depositing the amount, but you
don't reduce the value of your sales by that amount when working
out the VAT. The credit card charges are just the same.

Your system should be able to tell you how much you've sold,
otherwise how are you going to be able to verify the amounts
received from the credit card companies? To meet the VAT
requirements you will need to know this information, and use it
prepare your VAT return. I think the VAT office will get a
little shirty with you if you wait for your credit card company
to tell you how much you've earned.

--
Robert Killington
visit www.vatark.co.uk
for help with VAT

To e-mail me please do so via my website.
 
J

John P

BT said:
If you don't know the amount of VAT you owe to Customs & Excise,
you can estimate it. This however should not be a regular
occurence and needs the approval of Customs & Excise before you
do it. You have to adjust the estimate on the next VAT return to
ensure the correct amount of VAT is accounted for at the earliest
opporunity.
Understood.


No, it doesn't change a thing. If you're paid by cheque or in
cash, you pay bank charges for depositing the amount, but you
don't reduce the value of your sales by that amount when working
out the VAT. The credit card charges are just the same.
Ah, the waters are muddied slightly I think. One of our payment methods is
by premium rate telephone call. This is where the customer dials up a number
for x minutes at £y per minute. So the customer will end up paying their
phone company £y per minute but the phone company (via another company!)
will only pay us, say 85% of y. We are told we have generated a certain
number of minutes of calls for the month and are paid our outpayment rate
for those minutes. So there has never been a definite sale price.

I am going to have to check this with our accountant now, as we have been
operating like this for a couple of years. Now our bookkeeper has left so I
am starting to get my head around everything, but it's a bit of a minefield!

Thanks,
John
 
B

BT

John P said:
Ah, the waters are muddied slightly I think. One of our payment methods is
by premium rate telephone call. This is where the customer dials up a number
for x minutes at £y per minute. So the customer will end up paying their
phone company £y per minute but the phone company (via another company!)
will only pay us, say 85% of y. We are told we have generated a certain
number of minutes of calls for the month and are paid our outpayment rate
for those minutes. So there has never been a definite sale
price.

Right! The mud clears a bit. This is a different situation to
the one originally painted, and highlights the importance of
giving all the facts, or the answer you get may not be the right
one for your situation.

It's late on Saturday evening, so excuse me for being brief. You
may be dealing with the VAT on these payments correctly. I'd
need to research it to give a more positive answer.
I am going to have to check this with our accountant now, as we have been
operating like this for a couple of years. Now our bookkeeper has left so I
am starting to get my head around everything, but it's a bit of
a minefield!

VAT is a minefield! That's why I can earn a living from giving
advice about it ;-)


--
Robert Killington
visit www.vatark.co.uk
for help with VAT

To e-mail me please do so via my website.
 
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J

John P

Right! The mud clears a bit. This is a different situation to
the one originally painted, and highlights the importance of
giving all the facts, or the answer you get may not be the right
one for your situation.
Phew! I did worry for a bit.. it's so difficult to give all the facts
without turning the post into a multiple-page business plan which probably
bores everyone halfway through!

In our case I had a think about who collects the VAT and where, and it all
kind of made sense - the customer pays their BT bill, plus VAT, and our
billing intermediary invoices them for their take, plus VAT, and we invoice
them, plus VAT .. as long as HMCE don't lose out I suppose that's all that
matters ;-)

Cheers,
John
 

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