How do I account for VAT on unit deposits?
Summary
This article explains how to account for Vat on deposits taken on new vehicles.
More Information
HMRC has decreed that the contract with your customer is made at the point at which a deposit is taken, that this therefore constitutes a tax point, hence the deposit that you have taken has an element of Vat therein. In reality what this means is that, if you have any deposits for new vehicles outstanding at the end of a Vat quarter, you should calculate the Nett and Vat elements of these deposits and include them on your Vat return. Remember that the deposits are treated as though they are inclusive of Vat - so be careful to work your Nett and Vat out correctly. The HMRC website has example calculations to show you how to do this.
We recommend that you have a Sales Centre linked to a Nominal Code that is only used for the Sale and Credit of Deposits. If you do not already have these set up then see How do I Create a Sales or Purchase Centre? and How do I Create a Nominal Code?. The Nominal code should be set as a Profit and Loss Sales code.
Recommended Method
- Run the report for Vehicle Deposits and check that they are correct (new vehicles only, still outstanding, have not been refunded, have not been retained).
- Calculate the Nett and Vat elements of the total value of deposits.
- Create and print an invoice in the Sales Ledger with a date of the last day of the Vat quarter for which you are doing your return, with the Nett and Vat figures from the report.
- Immediately, create and print a credit note in the Sales Ledger with a date of the first day of the new Vat quarter with the same Nett and Vat figures.
- This has the effect of paying the Vat over in the period that HMRC deems that you should, but making sure that you don't pay it twice, since when you do invoice the vehicle, the total amount of Vat payable on the sale will be charged at this point.
