Hi there,
I'm hoping you are able to help me. The business I do the accounts for has just purchased a new van. It's been bought on credit - and will be payed back with monthly payments over the next 4 years. However, the VAT on the entire cost plus a substantial deposit has been paid initially, with the monthly payments to follow. How is it best to record this on the software? How do we take account of the interest? Do we include this in the full costs? As we are VAT registered, we would ideally like to claim the VAT back for this quarter? Is that correct?
I'd appreciate your help.
Kind regards,
Amy
Hi Amy,
You should create a new liability account called 'Hire Purchase Liability' to keep track of the loan outstanding on the van.
Record the van purchase as a Money Paid Out transaction from this liability account to the 'Motor Vehicles' asset account. Set the VAT rate on this transaction to 20% so you can reclaim it.
When you pay off part of the loan principal, record a Money Paid Out transaction from the Cheque Account to the Hire Purchase Liability account with the VAT Treatment set to 'Out of Scope'. When you pay interest on the loan, record a Money Paid Out transaction from the Cheque Account to the Interest Charges expense account with the VAT rate of 0%.
See this page for an example:
http://www.solaraccounts.co.uk/forum/topic.php?TopicId=777&Posts=1
Regards,
