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Post Info TOPIC: Representing VAT repayment supplement on Profit & Loss
Arthur Mill


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Representing VAT repayment supplement on Profit & Loss
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Hi, My first post having burned some midnight oil but still being stuck...  HMRC kindly paid a Ltd Co. £50 because HMRC were late in refunding VAT.  I'm happy that this "VAT repayment supplement" is exempt from Corporation Tax (http://www.hmrc.gov.uk/manuals/bimmanual/BIM31610.htm para. (b)) but I'm struggling as to how this would be shown in the Co's accounts.

On the Balance Sheet it's clearly going to be present in "cash at bank" and needs to also be in the P&L account figure to match.  How's it is typically represented on the P&L?  I can think of a couple of ways...  The note for "Tax on profit on ordinary activities" could explain that part of the profit is exempt from CT, or an extra entry after the tax has been declared and deducted could then increase the post-tax profit.

Thanks, Art.

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Anderson Accountancy


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Hi Art,
There's probably a few ways of dealing with this. You can either post the credit on the P&L as a new line item, Non-Taxable Income which would highlight the item when it comes to doing the CT, then adjust the income on the CT return or, personally, I would credit it to the Balance Sheet and ignore the P&L altogether; probably by posting into the retained profits account. I'm sure someone else on here will have a different approach though.

Regards
Dave

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David P Anderson AFA, FFTA

Anderson Accountancy

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Merlion ABS


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I would be tempted to put it in a Miscellaneous Income and make sure the description states it as a VAT repayment supplement.

I'm sure when the accounts are done, this will be picked up and treated accordingly. Or make sure it is pointed out so they know what it is.

Another Option is to shove it in suspense and let the Accountant sort it out as anything is suspense will be (should be) picked up and queried.

Or just create another nominal code called VAT Repayment Supplement in the income section around the miscellaneous code and put it in there.



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Arthur Mill


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Thanks both for taking the time to reply. I'm less confident posting only into retained profits so I'd prefer a line item on the P&L.

What about the position of this new Non-taxable/Miscellaneous Income line item? I'm used to working from gross profit to operating profit, adding interest, and then working out the tax on all those "ordinary activities". Is it a bit misleading to have the line item before the tax is stated, even if the tax's note explains the tax isn't on all of the ordinary activity profit? Would it be better after the tax is calculated, adding it in before the profit for year after taxation total?

Sorry to be pedantic; HMRC are getting their £50's worth of head-scratching out of me. smile.gif

Thanks, Art.

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