Sales Tax/Vat refund from Government

[Maf. King]

Hi John.

VAT due is not yours.  It is & has always been the government's money, that 
you happen to act as a tax collector for free for them (by charging an extra 
20% on your goods & services), and you look after it for a while, and then 
give it to them. ( that's why it should be a liability on your books)

therefore, VAT paid to suppliers is not an expense  (for a VAT registered 
business, at least. For an end user it *is* an expense).  That's how the whole 
VAT return offsetting what you've paid vs what you've charged process works 
out, such that the end consumer is the one who actually pays all the tax.

It follows that a quarter where you've paid more VAT to your suppliers than 
you've charged your customers means that you have a liability account with a 
negative balance.  So your accountant is IMHO correct to say that a refund 
would be in the Liabilities:VAT account, which should bring that account back 
to zero (ie increase it from a -ve)

(Value Added Tax is exactly that - well was back in the day - a tax on the 
value added by a company's processes.  But it is the end user/consumer who is 
actually paying the tax, not the companies involved in making the product.
Now-a-days, of course, it has been so extended & tinkered with that the "VA" 
purpose isn't particularly clear any more, it's all about the "T"!)


HTH, IANAA etc.
Maf.



On Friday, 3 February 2017 13:40:23 GMT John Whitmore wrote:
> I really thought I had my head around Sales Tax, VAT where I am, but my
> accountant threw a spanner in the works, earlier today.
> 
> He saw that I had an Income account for Vat refunds and said that that was
> wrong as I'd get taxed on an Income and it's not. He said that the refund
> from Government should go into the Liabilities:VAT account, which I think
> is totally wrong as well.
> 
> So I think that VAT Refunds should go somewhere else. Maybe an asset
> account?
> 
> My Problem with getting a refund and applying that to a Liability account
> means that my laibility is increasing, that's not correct at all.
> 
> Man accounting is simple algebra but it don't half get complicated.
> 
> Cheers for any thoughts on the matter.
> 
> John
> _______________________________________________
> gnucash-user mailing list
> gnucash-user at gnucash.org
> https://lists.gnucash.org/mailman/listinfo/gnucash-user
> -----
> Please remember to CC this list on all your replies.
> You can do this by using Reply-To-List or Reply-All.