Claiming VAT on Invoices

[TheCyclingProgrammer]

I'm not FreeAgent expert but Im pretty sure they can handle Cash Accounting for VAT. Which means the relevant date for VAT is the payment date NOT the invoice date. Makes no difference to the overall VAT payable in the long run but it will help cash flow short term

When to account for income and expenses: part 2 - FreeAgent

Yes but I already use accrual accounting. I can't just keep changing can I? I'm happy with it as it is, I only get the occasional self billed invoice.

[Alan @ BroomeAffinity]

Yes but I already use accrual accounting. I can't just keep changing can I? I'm happy with it as it is, I only get the occasional self billed invoice.

Do you mean "can't" according to HMRC or FreeAgent? HMRC = yes. FA = dunno, sorry.

[TheCyclingProgrammer]

Do you mean "can't" according to HMRC or FreeAgent? HMRC = yes. FA = dunno, sorry.

I meant HMRC. I thought you had to be consistent. But I don't think FreeAgent supports using both together anyway. The workaround isn't that big a hassle anyway.

[Alan @ BroomeAffinity]

I meant HMRC. I thought you had to be consistent. But I don't think FreeAgent supports using both together anyway. The workaround isn't that big a hassle anyway.

I don't imagine you'd be able to join and leave willy-nilly although there's nothing I can see in the legislation that specifically prevents it. But there's no problem joining or leaving if you meet the criteria.

[TheCyclingProgrammer]

I don't imagine you'd be able to join and leave willy-nilly although there's nothing I can see in the legislation that specifically prevents it. But there's no problem joining or leaving if you meet the criteria.

Would somewhat more faff than entering a duplicate invoice every few months though!

[Alan @ BroomeAffinity]

Would somewhat more faff than entering a duplicate invoice every few months though!

Very possibly. But (and forgive me I've I've misunderstood) you appear to be manipulating the tax point of your self bills so that the tax point appears to be the payment date rather than self-bill invoice date which might be different and which under enquiry, HMRC might not like. You'd be better off on cash accounting and do it right within the rules.

[TheCyclingProgrammer]

Very possibly. But (and forgive me I've I've misunderstood) you appear to be manipulating the tax point of your self bills so that the tax point appears to be the payment date rather than self-bill invoice date which might be different and which under enquiry, HMRC might not like. You'd be better off on cash accounting and do it right within the rules.

No that's not what I'm doing at all. In fact it's the opposite.

I'm creating duplicate invoices in FreeAgent with the same date as the self billed invoice so I can match the payments to them and have them assigned to the correct VAT period.

If I didn't do this then my self billed invoices would be reported in the period in which they are paid which might not be the correct one.

In short, incoming payments that are sales in FreeAgent have to either be matched to an invoice or just recorded under a sales category. If you do the latter, then FreeAgent will use the transaction date as the tax point as it has no other reference date.

Therefore any invoices generated outside of FreeAgent (such as self billing invoices) need to have a corresponding duplicate in FreeAgent if you are using accrual based accounting and want it to work correctly.

[Alan @ BroomeAffinity]

Apologies. I thought you meant you'd changed the date from the invoice date to the payment date.

So, it probably goes back to my original post: if you're looking to account for the VAT when it gets paid, then all you need to do is join the cash accounting scheme and update your settings on FreeAgent. But if you're happy as is, nothing needs to be done.

My point being FreeAgent CAN account for VAT on payments as opposed to invoice.

[d000hg]

To a degree you're correct but I also think that for newbie contractors there needs to be an element of handholding. This often completely alien territory so we always try to help them out as much as we can, especially in the first couple of months.

Well said Alan.