Partial Exemption VAT
VAT recovery on Purchases can be:
Fully recoverable – the full VAT amount is posted to the VAT Control Account,
Partially recoverable – the VAT that can’t be recovered goes to the P&L, and the recoverable VAT goes to the VAT Return.
Non-recoverable – this is posted as an overhead and not included on the VAT Return as recoverable, and
This features caters for those organisations that are able to recover all, or some, of their VAT on purchases. Non-recoverable and Partially recoverable VAT is possible on Purchase Invoices and Credit Notes, POP Invoices and Credit Notes, and Debit VAT Journals only.
For example, a charity often does not have to pay VAT on their income but this is offset by the amount of VAT they are able to recover on purchases.
At Year End, if the recovery rate changes but there is a delay in HMRC passing on the new rate, you are able to continue processing by using the VAT Calculation utility. This determines the difference in Posted and Actual Recovery VAT and then posts a journal.
Examples:
Fully recoverable – the full VAT amount is posted to the VAT Control Account:
Nominal | Debit | Credit | Description |
Purchases (2000) | 100.00 |
| Net |
VAT Control (8100) | 20.00 |
| VAT |
Creditors Control (8000) |
| 120.00 | Gross |
Partially recoverable - A percentage (e.g. 68%) of the VAT is posted to the P&L Cost account specified against the VAT Rate Record while the rest goes to VAT Control:
Nominal | Debit | Credit | Description |
Purchases (2000) | 100.00 |
| Net |
VAT Control (8100) | 6.40 |
| VAT-(VAT*Recovery Rate) |
Creditors Control (8000) |
| 120.00 | Gross |
Purchases (2000) | 13.60 |
| VAT*Recovery Rate |
Non-recoverable - The full VAT amount is posted to the P&L Cost account against the VAT Rate Record:
Nominal | Debit | Credit | Description |
Purchases (2000) | 100.00 |
| Net |
Creditors Control (8000) |
| 120.00 | Gross |
Purchases | 20.00 |
| VAT |
Software features
VAT Rate record
The previous VAT Rate List has been changed to a VAT Rate Record and associated List, making VAT Rates easier to manage. Each VAT Rate is a separate record. The Defaults window can be opened from the associated List.
You are able to specify the effect of each VAT Rate on the VAT Return so that the VAT Return is correctly updated. A VAT Return option has been added to the VAT Rate ribbon where you can specify which VAT Boxes are updated by the particular VAT Code and by which transaction types. On saving, the system checks that at least on update VAT Return option has been specified, and you are prompted if not.
You are able to specify that a VAT Rate is non-recoverable or partially recoverable so that VAT on Purchases is treated correctly. You are able to specify whether each VAT Rate is Fully recoverable, Partially recoverable, or Non-recoverable, and if Partially recoverable then you can set the Rate and effective date. If Partially- or Non-recoverable, then you can specify any existing, active Nominal Account to be updated or allow the non-recoverable VAT to be posted back to the originating analysis account.
The system automatically sets the correct VAT Return updates for each VAT Rate when you upgrade your data in order that you can carry on using your VAT Rates without having to make changes.
Please note that Access Accounts does not automatically create Rates for Partially- or Non-recoverable VAT. It is your responsibility to ensure that your VAT Rates are correctly set.
Also see the VAT Record topic.
Nominal Account record
The system prevents the Nominal Account record from being Deleted or set as Inactive if it has been set as the Non-recoverable VAT Update Account for a VAT Rate, to prevent inadvertent actions being taken. When trying to edit, delete or set as Inactive, you are prompted that this account cannot be deleted as it is currently being used.
Also see the Nominal Account topic.
Transactions
You can post Non-recoverable VAT to the specified update account when posting a Purchase Invoice or Credit Note, a Purchase Order Invoice or Credit Notes, and/or a Debit VAT Journal (including Recurring). This ensures that VAT on purchases is treated correctly.
Extra fields are shown on the Nominal Update tab to indicate the Nominal account to be updated and the value of the Non-recoverable VAT: the VAT value displayed on the detail line is the entire VAT value.
The Non-recoverable VAT Nominal Update account, value, and Recovery Rate are saved to the transaction detail line: the VAT value displayed on the detail line is the entire VAT value.
The Nominal Update Account specified on the VAT Rate is updated with the Non-recoverable VAT Value (or, if none has been specified, then the Debit Update Account from the Analysis record).
The VAT value posted to the VAT Control Account is the VAT less the Non-recoverable element.
If a VAT Rate that is flagged as Partially recoverable is selected and there is no effective Recovery Rate for the transaction date, you are so cautioned and the VAT is calculated as if the VAT Rate were Fully recoverable. It is your responsibility to ensure that your VAT Rates are correctly set.
See also Creditors Invoices and Credit Notes, Purchasing Invoices and Credit Notes, and Financials Debit VAT Journal topics.
Costing
The irrecoverable VAT element is posted to any Costing Project to which the Detail line is analysed so that the Nominal Account reconciles to the Project. When a Purchase Ledger, Purchase Order and/or Debit VAT Journal Detail line that is analysed to a Costing Project is posted using a Partially- or Non-recoverable VAT Code then the Non-recoverable VAT is included in the cost posted to the Costing Project/ Cost Centre.
VAT Return
The VAT Return is updated as specified by each VAT Rate Record so that the VAT Return is updated correctly.
Only the recoverable element of VAT is updated to the VAT return so that the VAT does not include the VAT that I cannot recover; the calculation used is VAT-(VAT*Recovery Rate).
The Inputs Enquiry that is opened from the VAT Return shows the VAT Value as the VAT less the Non-recoverable element so that the enquiry accurately reflects the values displayed on the Summary. There is an additional field that shows the Non-recoverable element.
Enquiries
The Non-recoverable VAT element is displayed on the Purchase Transactions Enquiry so that you can see how the VAT element updated to the VAT Return is treated. The Non-recoverable VAT Value and VAT Update Account are shown on the Purchase Transactions, Aged Creditors, and Purchase Analysis Transactions Enquiries (on the VAT Detail tab).
The Nominal Transactions Enquiry shows the actual values posted to each account so that you can see how the VAT elements updated to the VAT Return is treated. The Nominal Transactions Enquiry shows the values posted to each account, with an extra row displaying the Non-recoverable VAT Value (which is calculated as VAT less the Non-recoverable element) and VAT Control Account.
VAT Utility
This utility calculates the difference between the Non-recoverable VAT that has been posted and what it should have been, and then posts a journal for that difference, so that you don't have to manually calculate the difference and adjustment. A VAT Journal is posted for each VAT Rate based on the original Recovery Rate and what it should have been. You will need to specify which transactions should be recalculated based on transaction date, and the Recovery Rate to apply for these transactions.
The VAT Utility only looks at transactions using a VAT Rate that is Partially recoverable, and calculated a new Non-recoverable VAT value for each transaction based on (VAT * Recovery Rate), then calculates the difference between the original Non-recoverable VAT value and the new Non-recoverable VAT value. The difference is then posted as a VAT Journal to the relevant VAT Update account: the Net value of the journal is zero and the VAT/Gross is the difference. Where Recovery Rate has increased then a Credit VAT Journal is created, and where the Recovery Rate has decreased then a Debit VAT Journal is created.
Example:
VAT Rate = 20%, Recovery Rate = 67.65% (Update account 2100) -
3 Purchase Invoices are posted (Analysis: DR 2000, CR 8000, VAT 8100)
Invoice | Net | VAT | Gross | Non-recoverable VAT |
1 | 100.00 | 20.00 | 120.00 | 13.53 |
2 | 150.00 | 30.00 | 180.00 | 20.30 |
3 | 95.00 | 19.00 | 114.00 | 12.85 |
Double Entry is thus:
Invoice | Nominal | Debit | Credit |
1 | Purchases (2000) | 100.00 |
|
1 | VAT Control (8100) | 6.47 |
|
1 | Creditors Control (8000) |
| 120.00 |
1 | Non-recoverable VAT (2100) | 13.53 |
|
2 | Purchases (2000) | 150.00 |
|
2 | VAT Control (8100) | 9.70 |
|
2 | Creditors Control (8000) |
| 180.00 |
2 | Non-recoverable VAT (2100) | 20.30 |
|
3 | Purchases (2000) | 95.00 |
|
3 | VAT Control (8100) | 6.15 |
|
3 | Creditors Control (8000) |
| 114.00 |
3 | Non-recoverable VAT (2100) | 12.85 |
|
If Recovery rate increases to 68.25% -
Double Entry is thus:
Invoice | Nominal | Debit | Credit |
1 | VAT Control |
| 0.12 |
| Non-recoverable VAT | 0.12 |
|
2 | VAT Control |
| 0.18 |
| Non-recoverable VAT | 0.18 |
|
3 | VAT Control |
| 0.12 |
| Non-recoverable VAT | 0.12 |
|
If Recovery rate decreases to 67.00% -
Double Entry is thus:
Invoice | Nominal | Debit | Credit |
1 | VAT Control | 0.13 |
|
| Non-recoverable VAT |
| 0.13 |
2 | VAT Control | 0.20 |
|
| Non-recoverable VAT |
| 0.20 |
3 | VAT Control | 0.12 |
|
| Non-recoverable VAT |
| 0.12 |