Traditional Accounting for Deposit payment made to a non-EU supplier

Question asked by Katalin Kovacs 6 years ago

Good Afternoon

We import goods from a non-EU supplier.

Could you please let me know how I can account for a deposit payment which was made in December to a non-EU supplier?

The supplier provided with a Pro-Forma invoice which shows the full amount in $ and a note which says 30% deposit required. The supplier will provide with a Commercial Invoice in January.

We made the 30% deposit payment in December.

The HMRC VAT guide states that must include the value of imports in Box 7.

An HMRC adviser also said that the Pro-forma invoice does not create a tax point but as the deposit funds have been paid, the tax point is the payment date when it’s left our bank account and not the Proforma Invoice or Commercial invoice’s date. The balance payment will also incur another tax point.

Can you please let me know how I can do this transaction in clearbooks so the amount will show up in box 7 on the VAT return?

Thank you

deposit
imports
VAT
Write reply4

4 Replies

Katalin

This looks like a standard transaction with a Chinese company

In accounting terms you should set up your CB invoice (the total amount as this is the liability you have entered into as at the date you have sent the deposit (- and the same as buying on credit terms) - then allocate the cash deposit against the invoice to show it part paid. The full value will then be shown in Box 7

VAT category is Goods from a Supplier outside the EU - 0% - the VAT tax point will be covered by CB and as per your previous question on importing.

As for the advice you have got from the HMRC advisor, in practice it is nonsense - if they are saying that if you paid for the goods in weekly instalments there should be weekly tax points? Do as above and you will be doing what happens in the real world.

Best answer
6 years ago

Hi

Thank you very much for your reply and advice. I think hmrc refers to the following, please see attached link. Deposit payments, advanced payment and instalments where “The tax point if you ask for an advance payment is whichever of the following happens first:

  • the date you issue a VAT invoice for the advance payment
  • the date you receive the advance payment”

https://www.gov.uk/guidance/vat-instalments-deposits-credit-sales

We only received a Pro-Forma invoice (December) so far which shows the full amount.

We will receive the Commercial Invoice end of January which shows the actual full amount, so we will make the balance payment based on this invoice. Sometimes Pro-Forma invoice differs from Commercial invoice, when manufacturer produce 10% more or less products.

The deposit payment and Pro-Forma invoice is in December, Commercial invoice is in January.

Do you think is it better to record the Commercial invoice rather than the Pro-Forma invoice and Add the deposit payment to December month when it was paid, leave the amount like an “Un-allocated payment” - choose 0% - so on the December Vat return the amount will show in Box 7.

When I receive the Commercial invoice in January, I will make the balance payment. To record this in Clear-books Create a bill with January date < choose Goods from non-EU supplier < 0 % vat rate < allocate the December deposit payment and January balance payment to this invoice < on the next Vat return the system will recognise that the December Deposit payment was already declared and will declare only the Balance payment in box 7.

Do you think this would work?

Thank you

6 years ago

The HMRC advice you refer to is aimed for Customers NOT Suppliers - Chinese suppliers do their own thing so it does not make any sense to do other than set up your FULL Supplier liability at the deposit stage. If the 'final Supplier invoice' differs from the pro forma invoice then amend the original CB Purchase invoice if it's not in a locked VAT period. You will have to deallocate the deposit, change the CB invoice and reallocate the deposit against the revised Purchase invoice.

I think you are trying to be too mechanical - keep it simple

6 years ago

That was my point to hmrc advisers too, told them this is import and also a purchase transaction. Their reply was: the rule is valid for imports and purchase transactions.

I wanted to hear an accountants point of view, so thank you for confirming.

6 years ago

Reply to this question

Attach images by dragging and dropping or upload
 

Your comments will be public and can be answered by anyone in the Clear Books community.

Find out what we do and who we are

Apps

Company

Social