Reply to: Claiming VAT on Invoices

[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.

[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.

[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]

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]

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]

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]

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]

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]

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]

S

I use accrual based accounting, which is how FreeAgent is configured.

If I issue an invoice in FreeAgent the invoice date determines the VAT period regardless of when it gets paid.

If I get a self billing invoice and just record the payment as sales when I get paid and reconcile my bank statements, FreeAgent uses the payment date to determine VAT period as it doesn't know what the invoice date (how could it) is unless I create a duplicate invoice with the right date to match it to.

What FreeAgent should let me do is specify the tax date when u explain a bank transaction as sales but it doesn't so creating an invoice is the only way around it.

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

[TheCyclingProgrammer]

S

Even for non-self-billing, payment date is typically later than the invoice date and occasionally the two will fall into different VAT periods. So I don't understand the problem that you are fixing here.

I use accrual based accounting, which is how FreeAgent is configured.

If I issue an invoice in FreeAgent the invoice date determines the VAT period regardless of when it gets paid.

If I get a self billing invoice and just record the payment as sales when I get paid and reconcile my bank statements, FreeAgent uses the payment date to determine VAT period as it doesn't know what the invoice date (how could it) is unless I create a duplicate invoice with the right date to match it to.

What FreeAgent should let me do is specify the tax date when u explain a bank transaction as sales but it doesn't so creating an invoice is the only way around it.

[TheFaQQer]

Come off it Alan, the invoicing stuff would \ should have been made clear to him by the agency.

Every agent I worked with sent out info with the contract stating how to raise an invoice including VAT if registered, what needs to be on it and when you need to submit it.

And the OP missed that, if it was made clear, and missed the fact that they were underpaid by 20%. Alan's point (I think) is that if you fail to notice being underpaid by 20%, what else are you missing, and is everything set up to mimimise the chances of something serious being missed.

[BolshieBastard]

Yeah, you need a new accountant IMO. Are you on Flat Rate Scheme? You almost certainly should be.

Forgive me going OT, but because you appear to have knowledge gaps have you considered the following: Are you clear on your salary / dividend level? What about RTI? Have you made any corporation tax provision?

Come off it Alan, the invoicing stuff would \ should have been made clear to him by the agency.

Every agent I worked with sent out info with the contract stating how to raise an invoice including VAT if registered, what needs to be on it and when you need to submit it.

[Contreras]

it depends on the system you use...for example in FreeAgent, you can just use self-billed invoices and record payments as "Sales" when you reconcile your bank account BUT, if the payment is later than the invoice date and falls into a different VAT quarter, FreeAgent will allocate the sale to the wrong VAT period as you can't specify an alternative date/tax point when reconciling bank transactions.

Hence, when I get a self-billed invoice, I create a duplicate in FreeAgent that I can allocate the payment to and ensure it goes into the right VAT return.

Even for non-self-billing, payment date is typically later than the invoice date and occasionally the two will fall into different VAT periods. So I don't understand the problem that you are fixing here.

HMRC allow VAT to be accounted on either invoice date* (normal accounting) or payment date (cash accounting), so I still don't understand the problem. If the software only allows one method then just do that.

* unless payment comes first, which is rare but possible.

[SteelyDan]

Then your agency should have sent you copies of the invoices (they are still YOUR invoices) and they should have added VAT. But they wouldn't have done this unless you told them you are VAT registered and supplied evidence of this (VAT registration certificate).

You're going to have to speak to them about this and get them to either re-issue the invoices or accept a VAT only invoice for the missing VAT. They have every right to grumble about this as its a PITA but they shouldn't deny it - the VAT should have been charged and they can't dispute that.

Edit: read your above post. If you gave them your VAT details, then it sounds like they've cocked up. Get them to fix it.

+1
My SelfBills clearly show the VAT amount paid.