Reclaiming VAT on Stock Held when leaving Flat Rate Scheme

[Jayne Duthart]

Hi There,
I'm hoping someone can advise on a question in relation to claiming VAT on stock which you have on hand when you leave the flat rate scheme?
We claimed £4000 in 2016-2017 (End of April 2016 we did Stock take/1st May was our changeover to Standard VAT)
I am desperately trying to find out if this money recovered (which was subtracted from our next VAT bill return Aug 2017) gets accounted for any way on company accounts? For example should this £4000 be added to profits/subtracted from expenses?
I think this is what my accountant has done but I just can't get my head around why this should increase our profit?
Hope this makes sense to someone who could simplify it for me & if this should/shouldn't be accounted for and if it is accounted for where does is go.
Thanks so much

 

[Scalloway]

The VAT recoverable will be deducted from the cost of purchases. The cost of purchases will be shown net of VAT in your accounts.

When you are on standard VAT all income and expenditure is shown net of VAT. VAT is ignored in the Profit and Loss Account.

In your Balance Sheet there will be a figure for VAT due in creditors. It will be made up as follows:

VAT due to HMRC at the start of the year
Add VAT charged on income
Less VAT recoverable on expenses
which gives you
VAT due to HMRC at the end of the year

 

[Jayne Duthart]

Thank you so much Scalloway I really appreciate your help with that and believe it is making more sense.

Could I just expand to make sure I understand you fully & correctly and provide a bit more info? I completely get VAT will be ignored in the profit and loss account and think because I normally do ignore it, that's why I don't fully grasp it either. For example:

Stock purchased in 2015-2016 & accounted for in 2015-2016 but no vat input was claimed as we were on the FRS during that year.

2016-2017 Accounts

Total Sales = £30,000 (ignoring VAT)

Expenses = £6000 (ignoring VAT) then minus the £4000 deducted from VAT bill for the stock on hand just prior to FRS to standard switch over

Making Profit = £8000 & not £4000

My accounts show as you suggest:

VAT due to HMRC at the start of the year
Add VAT charged on income
Less VAT recoverable on expenses
which gives you
VAT due to HMRC at the end of the year

My Balance sheet

VAT Charged on Income £6000
Less VAT recoverable on expenses £4000 (vat on Stock on hand reclaim)
VAT due to HMRC £2000

but then my accountant has added an update journal for an additional Debit to my Nominal VAT activity of £4000 & a credit of £4000 in cost of purchases.

So sorry to be long winded & provide much more info, but i'm thinking that is what you are saying but just wonder why £4000 would be debited to my VAT account when I already have it accounted for in the balance sheet as below:

VAT Charged on Income £6000
Less VAT recoverable on expenses £4000
VAT due to HMRC £2000

thanks again

 

[Scalloway]

On first thoughts I can't see why your accountant has done the journal either. I'll mull it over and come back if I have any other thoughts.