HMRC VAT Return with late payment

[Manic]

Situation:

Agency owed several hundred thousand by end client having difficulty paying......Payment plan under negotiation. Several contractors owed money, some monies have been paid.

One contractor operating limited company owed £16k. The payment plan reflects the invoices sent, however at this stage no payment has been made to that individuals company. Obviously invoices are + VAT, and the VAT is now due.

Does this need to be accounted for at this stage? or more simply must HMRC get their money before the VAT has been paid?. It is possible that the debt may roll for some time yet, with a further possibility the end client will not pay.

Manic

[DaveB]

VAT is only payable on monies recieved, not just invoiced. HMRC are not quite so bad, yet, that they expect you to pay VAT when you havn't actually recieved it in the first place!

When you complete your VAT return you only declare turnover including VAT that you have actually recieved for the period in question.

[ASB]

Situation:

Agency owed several hundred thousand by end client having difficulty paying......Payment plan under negotiation. Several contractors owed money, some monies have been paid.

One contractor operating limited company owed £16k. The payment plan reflects the invoices sent, however at this stage no payment has been made to that individuals company. Obviously invoices are + VAT, and the VAT is now due.

Does this need to be accounted for at this stage? or more simply must HMRC get their money before the VAT has been paid?. It is possible that the debt may roll for some time yet, with a further possibility the end client will not pay.

Manic

From a VAT point of view it simply depends on whether you are accounting on a bills delivered or cash received basis. In the former the VAT effectively becomes liable as and when the invoice is raised (and input vat becomes claimable on point of receipt of purchase invoices). Cash received output vat becomes payable when the bills are actually piad - same for input vat.

If you are on the FRS then I can see no reason not to be doing cash received. If you are not on the FRS I Can see no reason not to be doing cash accounting unless you are a net reclaimer.

In any event you used to have to request to move from bills delivered (the default) to cash received. I believe that now you can just elect to do so - but check on HMRC.

If you are carrying a debt for some time then you should almost certainly make sure you are cash received basis for VAT.

[AlanR]

Only if on Cash Accounting Scheme?

VAT is only payable on monies recieved, not just invoiced. HMRC are not quite so bad, yet, that they expect you to pay VAT when you havn't actually recieved it in the first place!

Dave,

Happy to be proven wrong but i believe this is only the case if you are using Cash Accounting Scheme for VAT, if not then the amount of VAT due is based on Invoice / Tax date. For example, an invoice raised on the 30th June but not paid until, say, 15 July will be due for payment in the VAT period that covers the 30th June.

Thats my understanding, can anybody confirm this.

Regards

Alan

[the_rangdo]

Dave,

Happy to be proven wrong but i believe this is only the case if you are using Cash Accounting Scheme for VAT, if not then the amount of VAT due is based on Invoice / Tax date. For example, an invoice raised on the 30th June but not paid until, say, 15 July will be due for payment in the VAT period that covers the 30th June.

Thats my understanding, can anybody confirm this.

Regards

Alan

WHS

[techno]

As per the others, it depends on what VAT scheme you are on - either Accruals of Cash basis.

If on cash basis then there is no vat liable until you receive the money, but if on accrual basis then vat is liable when invoice is raised.

This happened to me early days when an agnecy went bust and I was on the accrual basis. I spoke to the VAT people at the time and they explained the VAT must be paid as normal but after two further VAT quarters and you have still not received the money then you declare it as a bad debt and the VAT then can be accounted for on the next VAT return (as though from a purchase so you are effectively getting the VAT back).

Obviously if you then get the money after all that you need to pay the VAT again.

The VAT people were very helpful and recommended I should be on the cash basis as this will protect me from a similar situation in the future and I swapped over to the cash basis and it is better for cashflow.

[Lewis]

The VAT people were very helpful and recommended I should be on the cash basis as this will protect me from a similar situation in the future and I swapped over to the cash basis and it is better for cashflow.

How did you swap? I thought you could just chose to do your VAT accounting on a cash basis, do you need to register with HMRC in some way that this is what you are doing?

[DaveB]

Dave,

Happy to be proven wrong but i believe this is only the case if you are using Cash Accounting Scheme for VAT, if not then the amount of VAT due is based on Invoice / Tax date. For example, an invoice raised on the 30th June but not paid until, say, 15 July will be due for payment in the VAT period that covers the 30th June.

Thats my understanding, can anybody confirm this.

Regards

Alan

No, you are absolutley right, I work on Cash Accounting so didnt stop and think that anyone else wouldnt be

[ASB]

How did you swap? I thought you could just chose to do your VAT accounting on a cash basis, do you need to register with HMRC in some way that this is what you are doing?

you *used* to have to apply. Now you can just do it at the end of any quarter. Assuming you meat the requirements.

http://www.hmrc.gov.uk/vat/account-cash.htm

[Alan @ BroomeAffinity]

How did you swap? I thought you could just chose to do your VAT accounting on a cash basis, do you need to register with HMRC in some way that this is what you are doing?

You just decide to do it and then start. It must be done at the start of a VAT period though. There are turnover limits to cash accounting but i think its about £300k so probably unlikely to effect any individual contractors.

Would have an effect on brollies which makes you wonder why they don't chase up unpaid bills on behalf of their "employees" more aggresively.