Sale invoices - The Book-keepers Forum (UK)

Blonde Accountant · Senior Member

Sale invoices

Shamus · Forum Moderator & Expert

Hi Nicola,

A tax point is created on receipt of the deposit whether an invoice has been raised at that point or not.

You are correct, your client is by the sound of things currently processing this incorrectly,

kindest regards,

Shaun.

JulieS · Senior Member

Hi,

Yes, the transaction will have two tax points:

1. On receipt of the deposit ( the VAT to include in the relevant return is determined using VAT fraction)
2. and second tax point which is determined under normal rules, s6 VATA 1994

Blonde Accountant · Senior Member

Thank-you both, the system is sage, so what would you suggest the process be in order that the right vat vat is captured on the appropriate returns? Would a sales invoice for £300 be raised when the deposit is paid, then another invoice for the remainder be raised at the point of despatch?

Many thanks

Nicola

Cheshire · Master Book-keeper

Hi
For first tax point - key deposit 'invoice' to customer account via liabilities nominal (assuming deposit is refundable).

Then for second , either CN to same nominal above and process full invoice amount to sales, or key balance to sales and reverse liab for deposit to sales with a journal.

Probably a good idea to keep track of deposits via spreadsheet

Blonde Accountant · Senior Member

Hi Joanne,

Thanks for that but I realise that I am being a bit dim here but I don't fully understand. what is my process within sage. The deposit is not refundable, it just gets knocked off the total shed value.

Thanks

Nicola

Haymac · Veteran Member

Hi Nicola,

I would process as follows :-

Raise sales invoice for full amount, post onto sage system.

Deposit - post against full invoice value - so if total gross sale was £500 less deposit of say £100, that would leave £400 left to pay. The VAT element on the deposit would be in the system then for when VAT quarter is due.

When customer pays the remainder ie £400 once this is posted against invoice the VAT element for this amount will be in system for VAT quarter.

You say deposits are non refundable, if the customer does not want shed, simply post a credit note against invoice for the amount outstanding.

Hope that makes sense.

JulieS · Senior Member

Hi,

I don't use Sage much, so cannot dispute the explanation on how to record the transactions in Sage.

However, in my view, based on what the VAT law says the process as set out by Nicola is incorrect.

If you issue an invoice for full amount on receipt of the deposit, you will create an only tax point( early tax point, s6(4) VATA 1994) and as a result you will be required to report the full VAT in that VAT period into which the so created tax point falls.

Whereas if you follow Joanne's suggestion, you will have two tax points:

1. Post invoice for the deposit amount, where the gross is £300 and the VAT value is £300 x 1/6, send the invoice to the client.

2. When the sheds are dispatched(basic tax point), you should issue an invoice for the remainder and if you issue it within 14 days of the basic tax point the date of the invoice will be your second tax point. Assuming that the client is expected to make the final payment
after the sheds are dispatched and on receipt of the invoice then the final payment should not amend this tax point.

VinceH · Expert

Just to throw additional confusion into the mix: Don't forget that there is no VAT due on the deposit if the customer cancels the order and loses the deposit (no supply has been made).

Cheshire · Master Book-keeper

Hi Julie J (Haymac) and Nicola
I agree with JulieS - One invoice for the whole lot means your client will be paying VAT before he needs to.

Also - think I need to cover off the part about the deposits. Ive assumed they are refundable as I said earlier. It cannot be classed as a sale at that point! Nicola - what does it say in any contract with the client? I would be surprised to see your client not refunding them if a client changed his mind and demanded his money back, especially with the deposit level you talked about earlier. I would absolutely get this aspect checked out, although to be on the safe side I would assume that it could be refunded and therefore needs to be listed as a liability until it can actually be classed as a sale (at time of supply).

You have two choices in sage - either set up a 'customer' record for each person you sell to. Can get messy if you sell lots of sheds.

Other option is to open up a 'customer' record called 'cash sales' or something similar. I will assume the latter for this exercise.

Also set up a 'shed deposits' account in your COA under say the 21xx range.

Then - option 1
1) Raise an invoice and post to your 'cash sales' customer account for the deposit of £300 - post this invoice to the a 'deposits taken' new nominal 21xx. Key invoice as T1 calc net so the VAT element will appear on your VAT return at the correct time.
When the sale occurs at the time of despatch:
2) Raise a credit note and post post to your 'cash sales' customer account for the deposit of £300 - post this credit note to the a deposits taken' new nominal 21xx. Key invoice as T1 calc net.
This would reduce that liability to nil if there was only one transaction.
3) Raise an invoice for the full amount - post to sales as normal.
The CN and full invoice will ensure the 'balance payment' is correct on the VAT return.

or option 2
1) 1) Raise an invoice and post to your 'cash sales' customer account for the deposit of £300 - post this invoice to the a 'deposits taken' new nominal 21xx. Key invoice as T1 calc net so the VAT element will appear on your VAT return at the correct time.
When the sale occurs at the time of despatch:
2) Raise an invoice for the balance due - post to sales as normal.
3) Journal deposit from 21xx to sales

Ensure you key identifying factors (eg customer name/sales order ref or some such) in the references boxes in sage! I cant stress enough that you should keep a spreadsheet on the go and until you are happier with the process and your accuracy of keying, keep balancing it say once a week, then move to monthly. Thats what I have always done for a kitchen company I looked after - so much easier to sort errors if you do it regularly.

I suggest you either try all the entries via the practice model OR - Take a back up, note your VAT control, sales control and sales balances, give all three entries a go and then check everything has appeared in the relevant pots as you would expect. If not you can then restore sage and try again.

Got this feeling Ive forgotten something - hope not!!! (brain addled after a very frustrating sagey day).

JulieS · Senior Member

Hi,
I cannot comment on what to do in Sage as I am not a Sage user.

As we agreed, receipt of a deposit creates a tax point. Therefore you are required to enter the VAT amount related to the deposit in
your VAT return for the period in which the tax point falls.
However, the deposit, whether it is refundable of not, is not a sale, it is deferred income.

Thus after posting the invoice for the deposit you should end up with:

Deferred income Credit. £250
VAT control account. Credit. £50
Bank/cash. Debit. £300

I don't know what steps you need to take in a Sage in order to get this result.

Once the sheds are dispatched, let's say they are sold for £2400, then the balances in regards to this sale should be as follows:

Deferred income Nil
Sales. Credit. £2,000
VAT control a/c. Credit. £400
Bank. Debit. £300
Trade Debtors. Debit. £2100

The VAT amount that needs to go into the next VAT return is £400 less VAT on the deposit, I.e. £350.

Cheshire · Master Book-keeper

My sage descriptions/ options match Julie's explanation that follows. Apart from I missed the explanation of the payments through then Bank as I was assuming Nicola would know this part as a sage user, although I probably should've added that part for any new sage bods out there.
HTH Nicola.