Error in VAT calculation (cash accounting) for expenses

Problem reported by David Foster 6 years ago

I believe there is an error in the way that VAT is calculated in Clearbooks. We do our accounts on transaction date of invoice, but VAT on cash accounting. When calculating VAT on this basis, normal bills are used in the VAT calculation for a particular quarter based on the date they are paid - I've checked and that works fine. However, expense claims are used in the VAT calculation based on the date of invoice, NOT the date they were actually paid out. This seems wrong to me.

Say an employee makes a claim date 15th Jan (say he drives somewhere on Jan 15). That claim is actually paid in early February. Since our VAT quarter ends Jan31, that claim should appear in next quarter's VAT calculation. But it would actually appear in this quarter's which I believe to be a wrong treatment.

You can see examples in our account. EXP00035 is dated 30 Nov, became BIL000240 dated 30Nov, was paid 2 Dec (payment ID 314). But it appears in November's VAT control account.

Please can you investigate.

7 Replies

Hi David,

May I please clarify that you are saying that on each invoice the payment is calculated on Invoice accounting, but the VAT is on cash accounting?

On your other point, you are able to add accrual dates onto invoices and this will allow you to account for them in a different quarter from which they were raised or paid. To activate accruals, please navigate to Settings > Organisation > Toggle Features > Accounting > Accrual Dates and tick the box.

I hope that this helps.

Chris

Hi David

The expense VAT policy followed is that the employee is acting as your agent and so the supplier's bill is actually paid on Jan 15th, so the fact that you don't reimburse him/her till later is ignored. In other words it's the equivalent of using a cash account in CB.

The only bit where I scratch my head is on mileage claims but the VAT element is tiny so I dare say HMRC wouldn't mind.

Does that help?

Chris - Yes, we do our VAT on a cash accounting basis. My question was whether the VAT calculation had been correctly implemented or whether my understanding was wrong. I spoke to Vanish this morning on the help line, and he said he would investigate with a consultant accountant if I raised a ticket. I tried but it ended up in the open forums so I guess he hasn't seen it yet.

Paul - thank you for such a clear answer. What you describe is how Clearbooks calculates it. So that closes the issue.

Thanks David - as if by magic I am said consultant. :)

Ah - I'd noticed that you had made many similarly precise contributions on many other threads, but hadn't realised the connection.

I'm not an accountant (you might have guessed), but I do value knowing my sources. Could you point me to what ever HMRC guidance exists about this? I like to be prepared in case of audit!

Hi David

You can have a look at HMRC's Cash Accounting notice, but I don't think there's anything specific on employee expenses:

https://www.gov.uk/government/publications/vat-notice-731-cash-accounting/vat-notice-731-cash-accounting#records-and-accounting-for-vat

As with a lot in VAT you have to sometimes go back to basics to get the right interpretation and, in this case you firstly have to decide who the supplier is. Clearly the supplier is always the VAT registered organisation providing the goods & services and not the employee who, as I say, is acting as agent for the company in paying out the expense on the company's behalf.

You will see that on the other side of the coin, if an agent is collecting money from customers, on your behalf, the VAT is declarable when the agent receives the money and not when they pay you.

Under cash accounting you are entitled to reclaim VAT when the supplier's invoice is paid and so this will be the date the employee pays it and not when you reimburse the employee.

As I say, although I have never been able to find this treatment specifically dealt with in HMRC guidance or legislation, this is the treatment I have always followed and, I would also say, it's the treatment used by other accounting systems I use.

Hope that helps but if you need it from the Horse's mouth you can always call HMRC's helpline on 0300 200 3700.

Cheers

I don't think I'll bother!

Fantastically useful answer as before. Thanks for taking the time.

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