How do I reverse an unpaid invoice?

[SabreEnergy]

In June I raised an invoice on one of my customers but forgot to send it! This has been filed for VAT purposes and the VAT paid.

I now wish to send the invoice but amend the original amount (it was incorrect) and add additional items. Quickbooks won't allow me to void the old invoice due to the VAT being filed so how can I get it off the books and revers the VAT before raising a new one? Should I just move it to bad debts even though its not really a bad debt?

 

[Seamless-Outsourcing]

It depends on whether you are accounting on a bills delivered or cash received basis. I guess by reading your post you are accounting on an invoiced basis (seeing as you have paid the VAT). Therefore VAT becomes liable as soon as the invoice is raised. Sadly, if you do not get paid for 3 months, that's your cash flow problem.

An unpaid invoice should appear on the balance as an asset (because this is money that someone owes the business) and the VAT component of the invoice should appear on the balance as a liability (because this is money that the business will eventually have to pay out).

For example, if you invoice someone GBP100 plus GBP17.50 VAT, and they haven't paid you upon paying your VAT, they will be expected to pay you 117.50 in the next. So you will have 117.50 as an asset in the trade debtor section of the balance. But at the end of the VAT quarter you ha e still paid 17.50 as part of your VAT bill. So you will have 17.50 as a liability in the VAT on unpaid invoices section.

 

[Seamless-Outsourcing]

For future reference (not that I am saying you have many bad debts or that you don't usually get paid on time - simply thought it might be of interest)

Quarterly accounting

You account for VAT quarterly based on the invoices issued and received in the period. You pay all VAT due, whether or not your clients have paid the invoices that incurred it.

Usually VAT bad debt relief is not available until the debt is six months old. However, under the cash accounting system explained below, the problem of VAT on bad debts disappears.

Cash accounting

Registered traders whose turnover is not expected to exceed a particular threshold in the following 12 months may use the cash accounting scheme. This allows you to account for VAT based on the actual payments received, instead of on the invoices issued and received.

You can start using this scheme at the beginning of a tax period - you do not need permission to use it.

Cash accounting can improve your cashflow if customers normally take a long time to pay. If, however, your customers pay promptly, you would probably be worse off under cash accounting because of the loss of input tax on unpaid creditors.

VAT cannot be accounted for again on receipts and payments of invoices issued and dealt with before you started to use the scheme.

You cannot use cash accounting:

For the sale of goods or services invoiced in advance of the supply being made.
Where payment for sales is not due for more than six months after the invoice date.
You must apply the scheme to the whole of your business. However, if you find your accounts system is unable to comply with the requirements, or if it proves to be of no benefit, you may leave the scheme.

Once your turnover exceeds the threshold, you are usually able to continue in the scheme until you reach the 25% tolerance limit. You must account for all outstanding tax in the period in which you leave the scheme.

 

[Williams lester]

In June I raised an invoice on one of my customers but forgot to send it! This has been filed for VAT purposes and the VAT paid.

I now wish to send the invoice but amend the original amount (it was incorrect) and add additional items. Quickbooks won't allow me to void the old invoice due to the VAT being filed so how can I get it off the books and revers the VAT before raising a new one? Should I just move it to bad debts even though its not really a bad debt?

Just raise a credit note against it and then start a new invoice to your customer.

 

[mr. mischief]

The normal way would be to raise a credit note for the invoice so you've cancelled the impact out. Then raise a new invoice for the correct amount.

 

[SabreEnergy]

The normal way would be to raise a credit note for the invoice so you've cancelled the impact out. Then raise a new invoice for the correct amount.

That's done the trick thank you very much everyone for your replies. This is only the second credit note I have raised so I wasn't familiar with the process.