Oh dear, it turns out we don't get VAT back...

[Maf King]

On Thursday 16 Jun 2011 15:00:23 edpsystems wrote:
> I love the way IANAA can become internet slang and understood in 2 days!
> Brilliant!
> 
> I'm not an accountant either, my aim when I implemented GnuCash was to move
> away from monthly spreadsheets and be able to monitor our overheads vs
> income in-house. As you rightly point out we're a dental clinic, so we have
> to look at our cost of services, maintenance and materials, but it's not
> proving beneficial because although I can see we spent x on electricity, it
> actually cost x+VAT, and the reports don't take the VAT into account.
> 
> If GnuCash doesn't cater for VAT-exempt businesses then I can't say I
> didn't try.
> 
> Stu

Hi Stu,

Given that a "not-registered-for-VAT" (subtly different to "exempt" AFAIK (in 
the UK, anyway)) business is effectively the same as a personal setup, then GC 
certainly can cater for it.

If you have recorded the electricity bill as a split transaction with some 
portion hived off to an Expenses:VAT account, then yes, I can see what you 
mean that reports may not be quite what you want.

GC will tell you that your electricity cost X (ex-vat), and that you spent a 
total of Y on VAT (all vat, everywhere), but it can't tell you that you spent 
X+vat on electricity - but I respectfully suggest that that is because you 
mis-understood the VAT reclaim situation, and have entered some "bogus" data, 
and you shouldn't be splitting the VAT out *if* you want to have the gross 
totals reported.  (which is probably the case if you don't have to account for 
the VAT.)

To a VAT registered business, the VAT you have paid isn't an expense, it is an 
asset to be reclaimed from the Govt. at some point (well, OK, discount it off 
your bill. ;-) ...)  In effect, by registering you make all your (non-zero-
rate and exempt) purchases  ~18->20%  cheaper. (note, your income goes down by 
the same amount - if you bill a patient £100, then you lose ~20% to the govt 
when registered!)  

TBH, the only reason I can see behind Keith's suggestion to record the VAT 
*regardless*, is if you want to do a what-if with regard to registering, and 
only then if many of your inputs (ie things you buy) are zero rated or exempt 
(medical stuff might be? don't know!)  If the majority of your inputs are std. 
rated, then it is easy enough to say that about 20% (or whatever) of your 
total expense is "potentially reclaimable" VAT. 
If you start up with the intention or expectation that you will register, then 
starting as you mean to go on and recording the VAT, even if it can't be 
reclaimed to start with does also make good sense, though. 

Maf.