Mismatch VAT codes on Sage 50 Accounts plus v21

[AR19473]

Hi, I have and issue I hoping someone may have a solution, I am on the Cash Accounting VAT Scheme and I have a supplier I receive goods from at the standard rate of 20% VAT [T1] and often receive credits from them at 5% VAT [T3] and lately sometimes at ZERO VAT [T0], as you are aware you can't post credits against invoices with different VAT codes I used to make some kind of postings journal or otherwise to resolve this when I had an issue but I can't recall how I did it before as for some time I have been using a much easier workaround by posting the invoices and credits with the correct tax codes but before entered the direct debit payment against the invoices, I would take a note of any [T3] or [T0] credits and write down the transaction number and then edit the transaction via the correction option change the tax codes to [T1] but not change the value for each transaction then save them, then I would allocate the credits now all [T1] against the [T1] invoices, the I would go back to the transaction correction option revert all the transactions I have change the tax codes on back to there correct tax code be that [T3] or [T0] and that has served me perfectly for years. Now I recently have upgraded Sage Line 50 2013 Accountant Plus to the subscription service while support still covered my data and now am running Sage 50 Accounts Plus and the workaround I have been using al this time works right up to the last step and everything is fine but when I go to edit the transaction to revert each transaction back to the correct tax code or [T3] or [T0] then where I now have a problem as when I do the credits are now UN-ALLOCATED again so I am left with the invoice and credit again with different tax codes. And unless I can complete this final step of my old workaround or find a new way to do it I can't leave it at that or the VAT verification will shows errors.

Has anybody else came across this or a similar problem and can offer advice please it would be appreciated, contacted Sage support for the first time in over 20 years of using there software but after some web chat and telephone conversation after the support operator had spoken with a technician, I no further forward and was advised to speak with my accountant and HMRC to see if I resolve the issue.

[brucedenney]

What you probably do not realise is that your VAT returns may have been incorrect because of what you have been doing.

When on cash accounting VAT is accounted for on the Payment of items.

As such the payment "takes on" the tax code of the thing it is paying and is reported on the return with that tax code.

The amount of VAT under/over declared is hopefully very small and it is most probably going to just be the turnover tax code that is wrong. If you think it is a significant amount then it would pay to have it checked. It would always pay to declare anything like this in the event of a tax inspection at the outset.

What I do is much more simple.

I refund the customer/supplier on the petty cash account
I then pay the customer/supplier using the petty cash account.

[AR19473]

Thanks for your reply Bruce, I was definitely paying the right amount of VAT and under the correct code, what I was doing was exploiting a loophole in the software to allow me to allocate the credits by altering the tax codes once allocated I changed them back again, now they have closed that loophole I need to work out a solution which will be more complex than you have described because of the differing tax codes with different rate percentages on each of them to cancel out the credits but make sure I have still done the VAT correctly and claimed or paid the correct amount.

[brucedenney]

The solution I describe works fine you do not need anything more complex.

[AR19473]

Maybe I'm just not getting my head around your solution then Bruce so lets say below is the scenario what are the refunds/payments you would make to the supplier from petty cash to solve my issue?

Okay for example lets say I have a supplier I pay be direct debit at end of the month I receive from them five invoices each for lets say £1200 including standard vat at 20%[Tax code T1] and I get a credit for £525 including vat at 5% [Tax code T3] and a final credit of £1000 which is zero rated for VAT [Tax code T0] I need to allocate the credits against the invoice so what are the refund/payments that I should make before I make the balancing payment of £4475 from my bank account.

If you can show me your solution including what the tax codes would be to the above Bruce I'm sure I then would know what I need to do from now on using your method.

[brucedenney]

From your normal bank account make a payment of £4475.00 match it against the T1 invoices leaving one invoice unpaid and one pat paid.

account balance is now zero but we have outstanding
credit notes for £525
credit note for £1000
a whole invoice for £1200
and an outstanding amount of £325 on another £1200 invoice.

Do a supplier refund to the petty cash account for each of the credit notes.

There is now £1525 in the petty cash account and £1525 outstanding on the supplier account.

Make a payment on the supplier account from the petty cash account and pay the two outstanding items for £1200 and £325.

[AR19473]

Thank you Bruce now I see where your coming from but this is where I can't get my head around things in regards to the vat element of the transactions you suggest to solve the allocation problem, with the 5 invoices at £1200 inc 20%vat =£6000 and a £1000 of that is vat less the £25 vat at 5% of the credit of £525 inc vat means I should have a reclaim of £975 as I sure you would agree, but using the method you have described and with matching codes I was assuming you were entering a correct vat amount for each transaction which that give you a reclaim of £1083.34 from my calculations a over claim of £108.34

My calculations of your method shows a vat amount of £854.17 from the £4475 payment you started with and after clearing the other to credit to the bank account which with the £35 vat part of one of the credits reducing the claim be current vat total to £829.17 but then there is the additional £254.17 vat part of the balancing payment of the outstanding invoices totalling £1525 inc vat leaving a total vat reclaim of £1083.34 instead of the £975 it should be.

If that's not the case I can only assume you were not entering the correct vat values into the transactions which then still throws the vat clarification check out as well meaning,
Wouldn't I be just as well posting and the credits of T3[5%] and T0[0%] as T1[20%] in the first place surely?

[brucedenney]

using the method you have described and with matching codes I was assuming you were entering a correct vat amount for each transaction which that give you a reclaim of £1083.34

I think you must have made a mistake somewhere because you do post the transactions with the correct vat codes and the correct vat amounts as you had assumed. The VAT return shows the correct VAT amount a refund of £925

I have checked this myself by posting your example. No idea where 1083.34 would come from.

Here is a complete list of the transactions in order as you described in your example

Code: Select all

1  PI TEST 5000 0                  14/01/2015   1000.00 200.00 T1 Y 1200.00
2  PI TEST 5000 0                  14/01/2015   1000.00 200.00 T1 Y 1200.00
3  PI TEST 5000 0                  14/01/2015   1000.00 200.00 T1 Y 1200.00
4  PI TEST 5000 0                  14/01/2015   1000.00 200.00 T1 Y 1200.00
5  PI TEST 5000 0                  14/01/2015   1000.00 200.00 T1 Y 1200.00
6  PC TEST 5000 0                  14/01/2015   1000.00   0.00 T0 Y 1000.00
7  PC TEST 5000 0                  14/01/2015    500.00  25.00 T5 Y  525.00
8  PP TEST 1200 0 Purchase Payment 14/01/2015   3729.17 745.83 T1 Y 4475.00
9  PR TEST 1230 0 Purchase Receipt 14/01/2015   1000.00   0.00 T0 Y 1000.00
10 PR TEST 1230 0 Purchase Receipt 14/01/2015    500.00  25.00 T5 Y  525.00
11 PP TEST 1230 0 Purchase Payment 14/01/2015   1270.83 254.17 T1 Y 1525.00

[AR19473]

I think you must have made a mistake somewhere because you do post the transactions with the correct vat codes and the correct vat amounts as you had assumed. The VAT return shows the correct VAT amount a refund of £925

I have checked this myself by posting your example. No idea where 1083.34 would come from.

Here is a complete list of the transactions in order as you described in your example

Code: Select all

1  PI TEST 5000 0                  14/01/2015   1000.00 200.00 T1 Y 1200.00
2  PI TEST 5000 0                  14/01/2015   1000.00 200.00 T1 Y 1200.00
3  PI TEST 5000 0                  14/01/2015   1000.00 200.00 T1 Y 1200.00
4  PI TEST 5000 0                  14/01/2015   1000.00 200.00 T1 Y 1200.00
5  PI TEST 5000 0                  14/01/2015   1000.00 200.00 T1 Y 1200.00
6  PC TEST 5000 0                  14/01/2015   1000.00   0.00 T0 Y 1000.00
7  PC TEST 5000 0                  14/01/2015    500.00  25.00 T5 Y  525.00
8  PP TEST 1200 0 Purchase Payment 14/01/2015   3729.17 745.83 T1 Y 4475.00
9  PR TEST 1230 0 Purchase Receipt 14/01/2015   1000.00   0.00 T0 Y 1000.00
10 PR TEST 1230 0 Purchase Receipt 14/01/2015    500.00  25.00 T5 Y  525.00
11 PP TEST 1230 0 Purchase Payment 14/01/2015   1270.83 254.17 T1 Y 1525.00

[/quote]

I completely admit I made mistakes in my calculations but the true vat reclaim should be £975 not the £925 however if that is a mistake when I look at your figures I see what you mean the £745.83 & the £254.17 less the £25 does mean you have a reclaim of £975, Thank you for your help it's not until you see it written like you have shown that it then begins to make sense, don't know if I can be othered with all that every month to clear about 6 or 7 tax code mismatches think at the next vat quarter end I'll change back to standard vat after over 25 years fo cash accounting at least life would be a bit more simply again and less messy to look back at my accounts when or if I get another vat inspection.

[brucedenney]

Sorry typo, it is 975 on the vat return.