Including VAT in Profit and Loss account

Discussion in 'Accounts & Finance' started by latino, May 5, 2014.

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  1. latino

    latino UKBF Newcomer Free Member

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    Hello all.

    As a profit and loss account is prepared using net figures for sales and purchases, how does the VAT claimed back on purchases work it's way into overall profit?

    For example, I enter a sales figure of £1000 with cost of sales at £200. This would leave me with a profit of £800. As I have been able to claim back the £40 VAT on the cost of sales where does this figure go in my accounts? In theory I have now made a profit of £840?

    I do have an accountant but I'm preparing my figures for them today and can't get my head around this when compiling my figures!

    Thanks.
     
    Posted: May 5, 2014 By: latino Member since: May 5, 2014
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  2. Banksbroo

    Banksbroo UKBF Regular Free Member

    229 49
    Can I just check you are VAT registered?

    If so, the VAT on the purchase cost gets allocated to the balance sheet (similar to VAT on sales), to an account usually called VAT on purchases. The difference between the VAT on sales and VAT on purchases accounts is what you have to pay or reclaim from HMRC.

    If not VAT registered, all values are recorded as gross amounts on the profit and loss accounts.
     
    Posted: May 5, 2014 By: Banksbroo Member since: Nov 7, 2008
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  3. latino

    latino UKBF Newcomer Free Member

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    Yes, I am VAT registered. Maybe my query isn't worded properly.
    I am wondering where the £40 in my above example makes it's way into my overall profit figure, essentially the amount that I will have to pay tax on.
    If i were to use the net figure from the profit and loss account as my total profit / earnings this £40 would not be shown even though I have had this amount back.
    It's my first full year being VAT registered so I've not had to consider this before!

    cheers.
     
    Posted: May 5, 2014 By: latino Member since: May 5, 2014
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  4. faradaykeynes

    faradaykeynes UKBF Ace Full Member - Verified Business

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    Vat refunds do no go to P&l hence not subject to tax.
     
    Posted: May 5, 2014 By: faradaykeynes Member since: Apr 19, 2012
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  5. Scalloway

    Scalloway UKBF Legend Free Member

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    If you are VAT registered all income and expenditure goes into your accounts net of VAT.
     
    Posted: May 5, 2014 By: Scalloway Member since: Jun 6, 2010
    #5
  6. SBlundell

    SBlundell UKBF Enthusiast Full Member - Verified Business

    753 185
    ....so your cost of sales isn't £200 (gross from the invoice) but £160 (being the gross invoice of £200 less the £40 of VAT).

    Which in your example P&L gives Sales (net of VAT) £1,000 less costs (net of VAT) £160 = profit £840

    (And in your balance sheet VAT control account, £200 output VAT less £40 input VAT = £160 VAT currently owed to HMRC).

    Although in the above example VAT would be £33.33 but that's a little irrelevant for the example purposes.
     
    Posted: May 6, 2014 By: SBlundell Member since: Aug 10, 2011
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  7. MyAccountantOnline

    MyAccountantOnline UKBF Legend Full Member

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    Do you use the VAT Flat Rate scheme?
     
    Posted: May 6, 2014 By: MyAccountantOnline Member since: Sep 24, 2008
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  8. MyAccountantOnline

    MyAccountantOnline UKBF Legend Full Member

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    Assuming you dont use the VAT Flat Rate Scheme.
     
    Posted: May 6, 2014 By: MyAccountantOnline Member since: Sep 24, 2008
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  9. Sparetoolparts

    Sparetoolparts UKBF Regular Full Member

    334 30
    I've the same question what happens/where should I record the £40 difference?

    Can I simply add it to my net profit after my I submit my VAT return?
     
    Posted: Mar 27, 2017 By: Sparetoolparts Member since: Oct 26, 2015
    #9
  10. Scalloway

    Scalloway UKBF Legend Free Member

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    What £40 difference?
     
    Posted: Mar 27, 2017 By: Scalloway Member since: Jun 6, 2010
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  11. MyAccountantOnline

    MyAccountantOnline UKBF Legend Full Member

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    Do you mean the difference between your output VAT and input VAT?
     
    Posted: Mar 27, 2017 By: MyAccountantOnline Member since: Sep 24, 2008
    #11
  12. Sparetoolparts

    Sparetoolparts UKBF Regular Full Member

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    Yes the difference of output and input

    At present I only have a P/L Spreadsheet and am working what I own to HMRC for VAT & Tax on this sheet, so after I put what I owe in VAT to one side what do I do with the difference?
     
    Posted: Mar 27, 2017 By: Sparetoolparts Member since: Oct 26, 2015
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  13. MyAccountantOnline

    MyAccountantOnline UKBF Legend Full Member

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    I really think you'd find using some basic accounting software helpful. Have a look at VT cashbook - its free.
     
    Posted: Mar 27, 2017 By: MyAccountantOnline Member since: Sep 24, 2008
    #13
  14. paulears

    paulears UKBF Big Shot Full Member

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    I'm a little confused over the 'claim back' - it's really input and output tax, with the difference paid to or received back from. If you are VAT registered, you are only really concerned with the net figures - what you have to add onto your invoices for VAT isn't yours, so it's value is excluded, as you receive it and pass it on as an unpaid tax collector. VAT refunds are not 'income' just repayments.
     
    Posted: Mar 27, 2017 By: paulears Member since: Jan 7, 2015
    #14
  15. STDFR33

    STDFR33 UKBF Big Shot Free Member

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    I mentioned using free software when they private messaged me with some queries back in February, but they never acknowledged my response - I can only assume my response was sh1te, or they weren't very grateful.
     
    Posted: Mar 28, 2017 By: STDFR33 Member since: Aug 7, 2016
    #15
  16. Sparetoolparts

    Sparetoolparts UKBF Regular Full Member

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    Advice was good, I was just in blind panic as explained in PM and only now am I getting my head above water. Sorry @The Accountacy Lab
     
    Posted: Apr 5, 2017 By: Sparetoolparts Member since: Oct 26, 2015
    #16
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