XERO profit / loss after VAT registration

[lavster]

We started charging / reclaiming VAT as of 1st January. However before this when we werent vat registered i used to used the profit / loss sheet to show my turnover / expenditure in my excel accounts. However since being vat registered these reports show my sales / turnover -VAT and show my purchases / expenses - VAT . Am i right in thinking Corporation tax is charged on the Net before VAT is taken off?

 

[Louisa@AardvarkAccounting]

Yes, that's correct. When you are on the standard rate scheme, as you are paying across the full rate of VAT on your sales and reclaiming the VAT on your purchases, the profit and loss account will show the net amounts. It will then be these net amounts which are subject to corporation tax.

 

[lavster]

Yes, that's correct. When you are on the standard rate scheme, as you are paying across the full rate of VAT on your sales and reclaiming the VAT on your purchases, the profit and loss account will show the net amounts. It will then be these net amounts which are subject to corporation tax.

Sorry i think i might have not explained it correctly, the reports now show my figures - VAT. i.e my sales - the VAT and whatever purchases - any VAT they have charged me. I use this report to work out how much CT we owe each month but its now not going to be correct. Do you use the software? if so is there a way around this setting?

 

[@aiteoconsulting]

I think Louisa has understood you correctly, and is correct in her answer. If you're on the full VAT scheme (and not the flat rate), the VAT charged and collected should not show in your profit and loss account. The amounts are collected on the balance sheet.

If you're on the flat rate scheme, typically accounting software will show the turnover and revenue without VAT and may post automatically any difference to a single line in the P&L. The method may vary a bit by package but for Xero you can read about this here:

https://help.xero.com/uk/Report_VATinXero$BK_FR_ReturnBoxes

under 'Flat Rate Adjustment required to balance VAT Account'.

 

[lavster]

Sorry I am on the standard vat scheme. So should I calculate my Tax on the profit figure on the profit and loss figure on the report now or do I need to work it out by adding the vat back on to these figures.

 

[STDFR33]

Net of VAT.

The software seems to be working correctly.

For corporation tax, taking the profit shown on the P&L and applying 20% is likely to be incorrect.

 

[lavster]

Ok thanks. Do you know how I can work this out now then?

 

[STDFR33]

Ok thanks. Do you know how I can work this out now then?

It depends on the business.

Is there assets, entertaining costs, etc.

If you do not know how to calculate corporation tax, you'd be better to engage an accountant.

 

[lavster]

Sorry I do know how to calculate corporation tax, but previously my profit and loss report showed every expenditure and every sale made so it was easy to calculate 20% of the final profit figure. However now I don't have an easy access to this figure as the vat has been removed from all the transactions.

I do have an accountant who does my end year so he'll calculate it all properly for me then but I like to use these figures as a rough idea so I know how much to set aside.

 

[STDFR33]

If you are VAT registered all your sales and purchases should be shown net of VAT, which your software is doing.

It is working correctly.

 

[johndon68]

Sorry I do know how to calculate corporation tax, but previously my profit and loss report showed every expenditure and every sale made so it was easy to calculate 20% of the final profit figure. However now I don't have an easy access to this figure as the vat has been removed from all the transactions.

I do have an accountant who does my end year so he'll calculate it all properly for me then but I like to use these figures as a rough idea so I know how much to set aside.

It still does but, as has been explained, the VAT goes on the Balance Sheet not the P&L - 20% of the figure will still give you a rough idea of the Corporation Tax but there's more to getting an exact figure but that was still the case when you weren't VAT Registered...

John

 

[MyAccountantOnline]

Sorry i think i might have not explained it correctly, the reports now show my figures - VAT. i.e my sales - the VAT and whatever purchases - any VAT they have charged me. I use this report to work out how much CT we owe each month but its now not going to be correct. Do you use the software? if so is there a way around this setting?

That is correct.

The VAT is no longer a cost for you being VAT registered as you are reclaiming it, and the VAT you charge on sales isnt yours you are just collecting it on behalf of HMRC.

 

[lavster]

Thanks everyone for the explanations. I've got my head around it now.