I was hoping you could help me with something... We have had a new broadband service installed total cost £3000 plus £600 VAT. As part of a local business incentive the council are paying the broadband company the £3000 part of the invoice direct and have said we just need to pay the broadband company the remaining VAT of £600.
My question is therefore... how does this go through our books? As a £600 payment all to the VAT account? i.e. enter a PI as £0 net and £600 VAT?
I would personally take a different route to Michelles in that would this not go through as a Government Grant regardless as to whether you physically receieve the money or whether it is paid directly?
The scheme works on the basis that you receieve a voucher for the funds which can only be spent with one of the suppliers of the service. Whether you actually physically received a voucher is immaterial.
The voucher itself is deemed money in the same way that if a wad of twenties had been put in your hand.
I feel that in this scenario one should go down the path of recognising the payment of £3000 plus VAT and seperately recognising the ring fenced grant of £3000 (as represented by the voucher) which makes the VAT transaction just a normal one with the grant recognised immediately through the P&L.
Here we get another question of course in that broadband is not a fixed asset where the equipment including physical cableing is. Also, the asset includes all expenditure incurred in bringing it to the location and condition for service so there is to my mind an arguement that the £3000 instalation which would be recognised in the P&L would be covered by the AIA.
Interested on other peoples views on that as I'm basically looking at an intangible (broadband) as a tangible (the instalation of) and considering what is fundamentally a capital based grant as a revenue based one.
Could turn into an interesting and lively discussion.
kind regards,
Shaun.
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Shaun
Responses are not meant as a substitute for professional advice. Answers are intended as outline only the advice of a qualified professional with access to all relevant information should be sought before acting on any response given.
"I would personally take a different route to Michelles"
Hang fire, I haven't given a route yet!! :))
So, now I know that the council pays the money to the installer directly, I can give my route..
Kim, if you are using bookkeeping software, I would post this through a dummy bank account, showing a receipt of £3000 posted to grant income (P&L), and then post a bank payment for £3600 claiming the VAT and posting the £3000 net to its own code, so is easily identifiable. Then when you pay the £600 out of the actual bank, post this on your accounts software as a bank transfer to the dummy bank account.
If you are the bookkeeper, I would suggest leaving the £3k income and expense where it is, and bringing it to the accountant's attention, so they can decide the way forward for the accounts. If you are the accountant, as Shaun says, you will need to consider the treatment further, but the above gets your VAT sorted in the meantime.
Hope this helps!
-- Edited by FoxAccountancyServices on Tuesday 20th of January 2015 02:29:37 PM
Ps - One assumes the installation invoice will be addressed to you, not the council? So you have a valid VAT invoice? If not, ring the team that handles this grant and ask their advice to see if this can be actioned. It might be you get a VAT only invoice from the installer, even??
Hi guys,
thanks for the advice, Its an odd situation I havent come across before.
michelle, thanks for the practical advice re: posting the transactions (I use sage) makes sense to me and seems like a good option.
We have a valid vat invoice for the full project I.e. £3000 and £600 vat.
Much appreciated.
X
Just to summarise - you are correct to claim the £600 VAT, and you are not liable to account for output tax on the grant money.
Sounds like a good deal!
