General UK VAT accounting query (slightly OT)

andy thomas andy at netstat-a.net
Thu Mar 10 01:57:34 EST 2005


This is not really a gnucash question but as it's something that might
be of interest to others who pay a sales tax of one sort or another,
such as the UK VAT scheme, I thought I'd ask here.

In our gnucash accounts, we enter sales as gross amounts (ie, value of 
the sale + 17.5% tax) and expenses, etc are also entered as gross amounts.
Every three months we pay the tax due to the government and this is 
accounted for as an expense. At the end of the financial year, I create a
trading/profit & loss and balance sheet using the gross figures from which 
I deduct the VAT payments as an expense.

Reading an accounting book on the train yesterday, it occurred to me that 
maybe we should be using net amounts in our accounts and keep VAT in a 
completely separate account. So the trading/P&L and balance sheets will 
show lower amounts throughout (17.5% less) but then there would be no 
deduction for VAT expenses so the final profit should work out the same.

Is this the right way to go about it? Book-keeping/accounting books for 
small businesses all seem to illustrate different ways of handling VAT so 
I guess it doesn't which method is used as long as it's used consistently.

Andy

-------------------------------------------
Andy Thomas,
netstat -a llp


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