Why are my VAT accounts

[John Ralls]

> On Oct 5, 2015, at 1:51 AM, andy <contact at acorncoopsupport.org.uk> wrote:
> 
> On 01/10/15 22:34, John Ralls wrote:
>>> On Oct 1, 2015, at 11:45 AM, Dave H <hellvee at gmail.com> <mailto:hellvee at gmail.com> wrote:
>>> 
>>> Seems to be details for the UK VAT 100 quarterly tax return - example form at http://blogs.thesitedoctor.co.uk/tim/img/VATReturn-FrontPage.JPG <http://blogs.thesitedoctor.co.uk/tim/img/VATReturn-FrontPage.JPG>  (thanks Tim)  Basically Value Added Tax collected on behalf of UK Governent HM Customs and Excise - similar to GST in Australia and State and Federal Taxes in the US I guess.  Boxes 1, 2 & 3 are amounts owing to HM and Box 4 is VAT/Sales tax paid by you.  Box 5 is the net amount payable/refundable.
>>> 
>> Thanks. That image led me to search for “filling in your VAT return” which yielded https://www.gov.uk/government/publications/vat-notice-70012-filling-in-your-vat-return/vat-notice-70012-filling-in-your-vat-return <https://www.gov.uk/government/publications/vat-notice-70012-filling-in-your-vat-return/vat-notice-70012-filling-in-your-vat-return>.
>> 
>> That makes it look like it should be reserved rather than expensed.
>> 
>> It surprises me that this should have gone unnoticed for 8 years. Are most of the UK users rolling their own CoA instead of using the template?
>> 
>> It also doesn’t do anything to tell us why it would ever have shown up on the Balance Sheet instead of the Income Statement (aka Profit and Loss Report).
>> 
>> Regards,
>> John Ralls
>> 
>> 
>> 
> Hi all,
> 
> yes it definitely should be a liability. Here is how the basic VAT scheme works, but I have no idea if it is similar to GST in Australia or state and federal taxes in the US.
> 
> If you are VAT registered (not all business are, you don't have to be unless your turnover is above £80,000. Although some smaller business will be because it is a definite advantage as it is a way the state subsidises certain industries e.g. food)
> 
> When you sell something you add VAT to the sale - this is money collected by you for HMRC so it becomes immediately cash in the bank(/debtors in your A/R account) and a corresponding liability to HMRC.
> 
> However VAT is only paid once by the end consumer (the first person in the chain that isn't VAT registered) so when you buy something with VAT on it you can claim it back from HMRC so this becomes a reduction of cash in bank(/creditors in your accounts payable account) and a corresponding Asset (money owed to you by HMRC).
> 
> The difference between the two every quarter is paid to HMRC.
> 
> UK accounting convention has VAT as a liability because for most business you pay some money to HMRC every quarter and so VAT collected is a liability and VAT paid is classed as a negative liability so they all sit together in the account hierarchy and balance sheet.
> 
> As to most UK users, I don't think most UK users who are VAT registered use GNUcash. It is the least user friendly part of it, and I spent a long time working it out with the one client that is VAT registered that wanted to use it politically. (I use for my own accounts and for other clients). I would be very happy to draw up some documentation for it/ help developers learn how it operates.
> 
> The problem isn't the larger business (over 80k turnover) that can afford Quickbooks et al, but the small business that the state wishes to subsidise by making the VAT in their sector zero or 5% e.g. Food and domestic renewables.
> 
> Also there are many different types of UK VAT collection scheme and I can only get my head round making GNUcash work for the scheme described above. There is a cash based scheme when the liability arises when you actually pay or are paid and many more smaller ones.
> 

You forgot to copy the list on this one.

The accounts outline in the message Maf linked to shows I think the correct layout, the author of the templates must simply have gotten confused. 

I understood already about how VAT works in general; what I didn’t know before reading the instructions for that HMRC form was the actual mechanics of reporting. Even for other countries in the EU that use similar VAT schemes will have different reporting requirements.

As for other schemes, I understand the GST in Australia and Canada is pretty similar. In the US we have no national sales tax, only state and county ones. Rather than having rebates, most of those permit”input" sales to registered entities to be tax-free, inputs in this case meaning anything that will be sold on; goods for the entity’s end use are taxed.

At present the only documentation about VAT is in appendix C1 in the Tutorial and Concepts Guide. The section (12.2) on Tax Tables is fairly generic with only a slight US slant, but it assumes that the reader already knows about sales taxes and is only about the tax tables themselves. We’d appreciate it if you could look those over and add some explanatory flesh to the bones.

I can easily fix the account types in the UK VAT template.

Regards,
John Ralls