NORMATIVA COMUNITARIA Y SUPERIOR

. The total net sales should have been posted from the sales day book to the credit side of the Sales account in the nominal ledger and the total VAT to the credit side of the VAT account in the same ledger.

. The total net sales returns should have been posted from the sales returns day book to the debit side of the Sales account in the nominal ledger and the total VAT to the debit side of the VAT account in the same ledger.

. The total net purchases should have been posted from the purchases day book to the debit side of the Purchases account in the nominal ledger and the total VAT to the debit side of the VAT account in the same ledger.

. The total net purchase returns should have been posted from the purchase returns day book to the credit side of the Purchases account in the nominal ledger and the total VAT to the credit side of the VAT account in the same ledger.

. The total net purchases should have been posted from the petty cash book to the debit side of the Purchases account in the nominal ledger and the total VAT to the debit side of the VAT account in the same ledger.

If VAT was overpaid or underpaid at the end of the last VAT period it will show in the ledger as a balance b/d at the start of the period with which you are now dealing.

If any debts have been written off during the period they will have been debited to the Sales account and the VAT content which applied debited to the VAT account, both in the nominal ledger.

The first thing to do is the VAT summary. Simply follow the format of Figure 120 on page 180 taking the figures from the Purchases, Sales and VAT accounts in the nominal ledger. The figures in the summary go on the same side as they are found in the ledger, e.g. monthly purchase totals will have been posted to the debit (left-hand) side of the Purchases account. Just copy them to the left-hand side of the VAT summary and vice versa for the monthly sales figures.

If you have any VAT due on acquisitions from other EU states it will show on the credit side of the VAT account. Copy the figure to the credit (right-hand) side of the VAT summary. If you can claim this back, as may be the case, the reclaim will appear on the debit side of the VAT account reflecting a seemingly peculiar state of affairs where you are both paying it and reclaiming it. Copy the figure to the same side of the VAT summary as it appears in the ledger.

Copy to the VAT summary any VAT underclaim or overclaim that has been carried down to the period for which you are accounting.

Copy over details of any bad debt relief you are claiming as it shows on the debit side of the VAT account.

Annual adjustments may have to be made in special retailers’ schemes and if such a case applies the adjustment figure will have been posted to whatever side of the VAT account it applies. Copy it over to the VAT summary

Now you do the arithmetic. Add in the input and output tax columns. (If you are using a spreadsheet just draw a line and enter below it the formula =sum and

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the cells concerned in brackets, e.g. = sum(b3:b5).) Add all the other inputs on each side to give a sub-total and then deduct the value of credit note VAT on each side. Deduct the smaller from the larger of the two totals and you arrive at a figure for VAT payable or reclaimable.

You can now use this as the source document for completing the VAT return. The figure for box 1 is the total VAT deductible less the VAT allowable on acquisitions from other EU states if any such figure appears in the VAT summary. The latter figure goes in box 2 and box 3 is the total of these two boxes, which should be the total of the VAT deductible in the VAT summary. The figure to enter in box 4 is the total VAT payable figure from the VAT summary. Here there is no need to separate the VAT due on acquisitions figure from the rest. Box 5 is simply the difference between box 3 and box 4. Box 6 is the total value of all other outputs including any VAT. This is the total of the three months of credit postings in the Sales account of the nominal ledger, whether sold in the UK or abroad, minus any sales returns. Box 7 is same for the inputs and is the total of the three months’ postings to the Purchases account, whether sold in the UK or abroad, minus any purchase returns. Box 8 requires you to provide the total value of goods net of VAT, together with any related costs, supplied to other EU countries and box 9 requires the same for acquisitions. Computerisation

Automatic systems and specialised tools now deal with VAT easily. For example, Sage line 50 will automatically calculate the VAT and complete a VAT return which is acceptable to HMRC as long as you simply enter the date parameters of the period for which it is to account.

There are certain differences in the format used when filing a return online to those that apply for paper returns. For example, if there is nothing to enter in a box in an online form you enter 0.00 while in a paper form you are required to write NONE. A negative value (a figure to be subtracted) must be written with a minus sign before it while a negative value on a paper form must be represented by bracketing the figure. No minus signs must appear on a paper VAT return.

After thoroughly checking the accuracy of the form write your name if you are the authorised person and sign and date it. If a payment is being sent with the form tick the box on the left of the signature. Write, or procure from the cashier, the cheque and send the form off to HMRC.

Special arrangements for retailers

It would be a virtually impossible task for some shops to record every individual sale. Take a sweet shop, for example. It may well sell hundreds of packets of sweets or bars of chocolate a day. The proprietor simply wouldn’t be able to record each item individually, so special schemes have been devised for retailers, which excuse them from having to keep itemised VAT records on sales. There are several such schemes, each with their own special return forms, and the retailer chooses one most suited to his or her kind of business.

Fig. 121. Sample VAT Form (VAT 100): Courtesy Controller of HMSO (Crown Copyright).

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VAT due in this period on sales and other outputs 1

VAT due in this period on acquisitions from other EC member states 2

Total VAT due (the sum of boxes 1 and 2) 3

VAT reclaimed in this period on purchases and other inputs 4

Net VAT to be paid to HMRC or reclaimed by you 5

Total value of sales and other outputs excl. any VAT (incl. box 8 figure) 6

Total value of sales and other outputs encl. VAT (incl. box 9 figure) 7

Total value of supplies of goods and related costs, excl. VAT, to other EC states 8

Total value of all acquisitions and related costs, excl. VAT, to other EC states 9

Tick if payment is being sent

Enter your name or name of authorised person

Sign form after thorough checking or pass to authorised person to sign

I ... Signature... Date ...

‘Shoebox jobs’

Sometimes, small businesses neglect their book-keeping in the first year or two. They find other day-to-day business operations too demanding. The adminis- trative side of the business seems non-productive. ‘Let’s make hay while the sun shines,’ they say; ‘we’ll catch up with the book-keeping when business is slack’. But often the accounts are put off, until suddenly the proprietor receives a high income tax assessment and demand. This comes because HMRC has not received his final accounts on which to charge the correct tax. He is given 30 days to appeal against the assessment; the appeal will probably be granted, but he will only have a short time to get his records up to date and produce final accounts. When he begins the task, he finds sales and purchase invoices all over the place, in no particular date order. Cheque book stubs have not all been filled in; he cannot find all his old bank statements; there are screwed up petrol receipts in every pocket of his working clothes and all corners of his lorry or van. He becomes bewildered, dumps everything he can find in a box and takes them along to an accountant. Little wonder accountants call these ‘shoebox jobs’. Invariably some documents have been lost, so normal double entry book- keeping is impossible. A way has to be found to fill in all the gaps.

The capital comparison method

One method is to draw up an opening and a closing statement of affairs, and deduct the opening capital from the closing capital. This is called the capital comparison method. The idea is to add together the fixed assets, the merchandise (stock), the accounts receivable (money owed to the proprietor after bad debt provision), cash in hand and cash at bank at the date in question. Deduct from that the accounts payable (money owed by the proprietor) and the difference will be capital. These statements are in effect the balance sheet, though the term balance sheet should really only be used when it has actually been drawn up from the proper ledger ‘balances’.

. The difference between the capital at the end of the year, and that at the start of the year, is the net profit.

There is one big flaw in using this method alone. Some of the profit—we do not know how much—may have been taken out by the proprietor in drawings during the year; so the difference between opening and closing capitals will not itself necessarily tell us the profit. Example: suppose the opening capital was £10,000 and the closing capital £11,000. Deducting opening from closing capital suggests a net profit of £1,000. But what if the proprietor had drawn £5,000 during the year? The profit would then really have been £6,000 (£1,000 plus £5,000).

If we have accounts for drawings, however, this problem is resolved. We just add the drawings to the difference between opening and closing capitals to measure the profit.

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