How do I account for VAT on unit deposits?
Summary
This article explains how to account for Vat on deposits taken on new units.
More Information
 | Units: Unit is a general term used to cover all types of vehicle and machinery, including items such as motorcycles, scooters, cars, trucks, vans, caravans, motorhomes, boats, tractors, ATVs, agricultural equipment, wholegoods and construction equipment. |
HMRC has decreed that the contract with your customer is made at the point at which a deposit is taken, that this therefore constitutes a tax point, hence the deposit that you have taken has an element of Vat therein. In reality what this means is that, if you have any deposits for new units outstanding at the end of a Vat quarter, you should calculate the Nett and Vat elements of these deposits and include them on your Vat return. Remember that the deposits are treated as though they are inclusive of Vat - so be careful to work your Nett and Vat out correctly. The HMRC website has example calculations to show you how to do this.
We recommend that you have a Sales Centre linked to a Nominal Code that is only used for the Sale and Credit of Deposits. If you do not already have these set up then see How do I create a sales or purchase centre? and How do I create a nominal code?. The Nominal code should be set as a Profit and Loss Sales code.
Recommended Method
Go to " Unit Sales Unit Sales Reports Unit Sales Report Generator".
- Type Deposit and press [Search].
- Select 'Outstanding Unit Deposits' and click [Start].
- Check the deposits listed are correct i.e. they are still outstanding, have not been refunded and have not been retained.
- Calculate the Nett and Vat elements of the total value of deposits for New Units.
- Create a single invoice in the Sales Ledger.
- Create a customer for your company specifically to account for the deposits held.
- Enter the total Nett and VAT calculated at Vat Rate 1.
- Use the Sales Centre you have created for the Sale and Credit of Deposits for the Nett Amount.
- Use the date of the last day of the Vat Quarter for which you are doing your return.
| Leave the Invoice unpaid as you will be crediting it immediately. |
- Immediately, create and print a credit note in the Sales Ledger.
- Use the date of the first day of the new Vat quarter with the same Nett and Vat figures.
- Allocate the Credit against the Invoice in " Sales Ledger Receipts".
 | This has the effect of paying the Vat over in the period that HMRC deems that you should, but making sure that you don't pay it twice. When you do invoice the unit, the total amount of Vat payable on the sale will be charged at this point. |
See also
- Recommended unit sales routines
- How do I move a deposit to another unit?
- How do I refund a unit deposit?
- Taking a unit deposit
- Selling a unit
