Tax Point vs date of invoice vs prepayment

Discussion in 'Accounts & Finance' started by Chris1987, Jul 12, 2019.

  1. Chris1987

    Chris1987 UKBF Newcomer Free Member

    3 0
    Hello,

    I wonder if you could advise on the matter below.

    We received invoice dated 01/06/2019 for service which is related to the period: 01/08/2019 - 31/07/2020.

    Tax point shows 01/08/2019
    Our tax quarter is a calendar year.
    In this case not sure how to deal where exactly tax should be deferred to qtr 2 (Apr - June) or qtr 3 (Jul-Sep)?
    Also, because this invoice is related to future I assume that should be put to prepayment but the issue is I am not sure if this should prepay because the invoice wasn't paid up front.

    I am really confused about this but I am new at this matter.

    WHat is the rule with this type of invoices?

    What happens if we have an invoice dated in future we need to pay for the invoice, should we pay only net amount and tax amount should be only paid in the moment of the invoice date(month)?

    I will be much appreciated for help.

    Thanks
    Chris
     
    Posted: Jul 12, 2019 By: Chris1987 Member since: Jul 12, 2019
    #1
  2. lesvatadvice

    lesvatadvice UKBF Regular Free Member

    735 109
    For a 'continuous supply of services,' the VAT Tax Point is the earlier of date of invoice and date of payment. If the invoice is dated 1 June 2019. Without sight of the document I do not see how the tax point can be changed to 1 August just because the invoice says so.
    (It may also depend on the nature of the services. Please will you indicate what is being supplied?)
     
    Posted: Jul 12, 2019 By: lesvatadvice Member since: Jul 7, 2011
    #2
  3. Scalloway

    Scalloway UKBF Legend Free Member

    14,911 3,165
    I would put the invoice in the purchase ledger on the date on the invoice. I would then journal the Net portion to prepayments and release it as the service is provided.

    I would pay the invoice in full on the appropriate date.
     
    Posted: Jul 12, 2019 By: Scalloway Member since: Jun 6, 2010
    #3
  4. Chris1987

    Chris1987 UKBF Newcomer Free Member

    3 0
    Hello,
    Thank you so much for your response.
    The service is a supply of hygiene(toilets) - service one time in a week for the whole year starting 1st of August 2019.

    On invoice tax point shows 1st of August(as by supplier service start in August) and date is 1st of June.

    I would do it the same but prepayment is payment of expenditure paid in full, is it right? The invoice is a D/D with a collection date on the 30th of July so how can I put it to prepayment if the expenditure wasn't paid in June?


    Thank you again some much for your help.
    Lukas
     
    Posted: Jul 13, 2019 By: Chris1987 Member since: Jul 12, 2019
    #4
  5. Scalloway

    Scalloway UKBF Legend Free Member

    14,911 3,165
    If you enter the invoice in the creditor's account with a date of 1 June the other side of the entry will be the expenditure account for toilet hygiene. Your profit and loss account will have an expense that does not apply to the period in question. To remove the expense the most logical thing to do is to transfer it to prepayments.

    The D/D merely clears the creditor balance, it does not hit P & L.
     
    Posted: Jul 13, 2019 By: Scalloway Member since: Jun 6, 2010
    #5
  6. Chris1987

    Chris1987 UKBF Newcomer Free Member

    3 0
    Hi,

    I understand it not hit P&L because I can post invoice straight to prepayments. The issue I have is that based on prepayment definition this invoice as of 1st of June is not a prepaid expense.

    How do I understand prepayment is that I received an invoice as of 1st of June which we paid and then I can put it to prepayment (balance sheet)? Invoice in this case in June is not paid so I should wait to July?

    Also, how to treat the date of the invoice in this case and VAT aspect (which VAT return qtr should hit)?

    Apologies for so many questions, I am new in this and try to get my head around it.

    Thanks again
     
    Posted: Jul 13, 2019 By: Chris1987 Member since: Jul 12, 2019
    #6
  7. Scalloway

    Scalloway UKBF Legend Free Member

    14,911 3,165
    Bad practice. Post to the expense code and journal out to prepayments.

    If not a prepayment what is it? When you are doing accrued accounts the actual date of payment is not important, the date that matters is the date used to post it to the creditors ledger.

    If the supplier has dated it 1 June then they should have paid over the VAT in whatever quarter their next VAT return is made. So I can't see why you shouldn't reclaim it.
     
    Posted: Jul 13, 2019 By: Scalloway Member since: Jun 6, 2010
    #7
  8. Victoria_V

    Victoria_V UKBF Contributor Full Member

    78 10
    This invoice should be entered on your purchase ledger as the date of the invoice and the amount prepaid to your balance sheet prepayments account. Assuming you do monthly management accounts, every month from the date the services relate to, in this case from 01/08/2019 onwards, the monthly amount should be journaled out from prepayments to expenses. So your double entry every month would be:


    Cr Prepayments

    Dr Expenses

    So basically you will be spreading out the cost of the service over a period of 12 months from 01/08/2019 - 31/07/2020 and releasing the charge for each month into your P&L from your prepayments account(balance sheet account).


    You should be able to reclaim the input VAT that your supplier has charged you on this invoice on your next VAT return. Check out section 14.2 of the below VAT notice.

    https://www.gov.uk/guidance/vat-guide-notice-700#section14
     
    Posted: Jul 16, 2019 at 1:20 PM By: Victoria_V Member since: May 29, 2019
    #8