VAT Relief on Bad Debt w/o - how to do in SAGE - The Book-keepers Forum (UK)

Apollo · Member

VAT Relief on Bad Debt w/o - how to do in SAGE

clott · Member

My understanding is as follows:

1) Issue a non-VAT internal credit note for the amount inclusive of VAT - code the amount to the Bad Debt Account. This clears the sales ledger
2) Enter a purchase invoice with VAT on it coded to the Bad Debt account - this recovers the VAT as input tax as is required by the rules
3) Enter a non-VAT purchase credit note coded to the Bad Debt account for the VAT inclusive bad debt.

Hope that this makes sense!
Regards

Lisa Jo · Senior Member

I wouldnt do any credits or purchase invoices? If you are an experienced bookkeeper then a journal would just suffice..

BackOfficeGroup · Guru

any VAT on bad debts should be added to the input tax as it is an expense to the company not just a straight forward credit note to get it off the sales ledger.

I agree to enter a credit on the sales ledger, to the bad debt nominal code (8100) using T9 code. Then you will need to do a journal entry from the bad debt code to purchase tax control account. If you have a bad debt provision, then the net amount will be set off against this. If not, it will remain on the P&L.

However when you come to the VAT return, Sage will not include that amount so you will have do amend the final figures, it all depends on how you use sage!

attilabenko · Guru

I agree with the above. And yes VAT returns are generated by Sage but you CAN amend them. And then the question is what to do in an exam situation. I think you should go with the method IAB or your learning provider for IAB suggest...they should know what they expect. don,t worry they not always know :) I would not do the you can do anything as long as the result is right, definietly not in an exam...

BackOfficeGroup · Guru

I think the IAB are wrong though to suggest that the VAT is deducted to the outputs and not the inputs.

HMRC says
If you are entitled to claim bad debt relief, you add the amount of VAT you are reclaiming to the amount of VAT you are reclaiming on your purchases (input tax) and put the total figure in Box 4 of your VAT return.

I would question it with your training provider as this is an important issue.....

P

shanepeterson · Newbie

I know not an option sage Exclude / Include early reconciled transactions. Select early projects included in the run-time to give in return. In addition, if you are a cash accounting to enter invoices, you should not run the return difference.

Rhianrach · Expert

BackOfficeGroup wrote:

I think the IAB are wrong though to suggest that the VAT is deducted to the outputs and not the inputs.

HMRC says
If you are entitled to claim bad debt relief, you add the amount of VAT you are reclaiming to the amount of VAT you are reclaiming on your purchases (input tax) and put the total figure in Box 4 of your VAT return.

I would question it with your training provider as this is an important issue.....

P

But surely you are reducing the output VAT, you've made a sale (output) this has gone bad so reduce that amount so DR that figure by the VAT element of the bad debt. ................ or however you might want to do it because lets admit it they are only interested in final figures and they all work out the same in the end :)

Stardoe · Guru

Hi there,

I agree with Philip. If I was using Sage I would remove the bad debt from the sales ledger by doing a credit note to the bad debt nominal code for the total amount with a T9 tax code and then do a journal to credit bad debt nominal with the amount of the VAT with a T9 code and debit Purchase tax control with a T1 tax code. That way it will pick it up in the VAT Return.

You can only claim the VAT back on a bad debt after 6 months, but if you know that it is definitely bad then you will want to remove it from the sales ledger straight away or it will make your debtors figure overstated.

Pauline

Donna CBK · Senior Member

As per HMRC http://www.hmrc.gov.uk/vat/managing/reclaiming/bad-debts.htm#1
If you are entitled to claim bad debt relief, you add the amount of VAT you are reclaiming to the amount of VAT you are reclaiming on your purchases (input tax) and put the total figure in Box 4 of your VAT Return.
I have always been informed you must show the full value in bad debts that is to be written off and then adjust out the VAT element you are reclaiming by journal. On completing the journal you will need to enter tax code T1 otherwise it will not show up on the VAT return.

Stardoe · Guru

Donna, we are of the same mind

Pauline