What is the best way to enter an opening balance of payments received into a sales ledger account without the existance of any invoice, as my clients pays regularly by DDR in advance of receiving the related invoice. Thanks Dave

Hi Dave,

Recording 'advance payments' in Solar Accounts is a little tricky - you need to create a 'dummy' invoice to keep track of your customer payments. Say you received £470 from a customer in January, February and March but did not perform the work and issue an invoice until April. Here's how you would record this:

In January, create three transactions:
1. An invoice for £1,410
2. A credit note for £1,410 with the same date, account and VAT Treatment as the invoice. A simple way to do this is to right-click on the invoice, select 'Copy', then change the Document Type to 'Credit Note'.
3. An invoice payment for £470

In both February and March create an invoice payment for £470.

In April, delete the credit note, then update the date on the invoice and issue it to the customer.

Note that if you are registered for VAT and use the normal (ie. not cash) method you may need to manually adjust your VAT return. This is because HMRC require that you pay VAT on advance payments when you receive the money, not when you issue the invoice. Using the above example, on the VAT return for Janurary-March you would need to manually increase Box 1 by £210 and Box 6 by £1,200. For the April-June return your would do the opposite (ie. decrease Box 1 by £210 and Box 6 by £1,200).

I hope this makes sense - please let me know if you need more information.

Cheers,

Mark, thanks for your help. I do understand but it does seem complicated. Please advise if you can forsee any problems doing it a different way as follows, which is what I have done so far.

1/ Create a suitable nominal account under liabilities called "Whatever the Business Name'is Creditor", then enter the supplier opening balance for the new financial year into that nominal account, then continue posting all future current year advance payments into that nominal account.

2/ When you eventually enter the invoice to a Purchase Ledger Supplier account, make a posting to that account using "Money Received" and allocate all the payments previously made to that invoice, by taking the money from the "Whatever the Business Name'is Creditor" nominal account.

While on this subject I notice there is no effect on any Purchase Ledger or Sales Ledger account until an invoice has been posted. If I use Money Paid Out or Money Received to an unused Purchase Ledger or Sales Ledger account I am assuming that is acceptable, because I am importing sales receipts using csv import to a Sales Ledger Customer account called simply SALES that will never have any invoices entered into it. This results in no posting being made to that SALES account but provides the necessary nominal entries that I require. It works perfect;y for me as it is but just want to be sure it is ok to use it this way.

Thanks Dave

Hi Dave,

Yes, your approach is fine - and definitely simpler! The only drawback is that the balance in the Customers list will not include this prepaid amount. Again, you need to take care when completing your VAT return. If you have told Solar Accounts to calculate VAT when invoices are issued you may need to manually adjust boxes 1 and 6 (see my previous message).

It is fine to only record Money Received and Money Paid Out transactions (without recording invoices). These transactions won't affect the customer balance, but they are still associated with the customer. To see all transactions for a customer, right-click on a row in the Customers list and select 'Show Related Transactions'.

Cheers,

Thanks Mark.

My approach with regard to vat would be to allocate the vat amount when using "Money Received", then when I input the invoice later I would enter it as zero rated I guess.... would that work ok? That way the vat reporting should still be accurate I think?

Thanks Dave

Hi Dave,

I don't think that's a good solution to the VAT problem because your customer and HMRC will expect to see the VAT amount on the invoice. It also credits the VAT Liability account earlier than necessary. Instead, I think you should manually adjust the values for Box 1 and Box 6 when copying the figures from Solar Accounts to your VAT return.

Regards,

Thanks Mark, yes I agree that a customer and HMRC will expect to see the VAT amount on the invoice, and because of that I actually don't think vat should be related to a payment but only to the invoice. My accountant agrees and the following is what I found from HMRC .....

VAT and receiving payments by instalments
You might allow your customer to pay you for goods over an extended period by making regular payments by instalment. The goods remain your property until the full price is paid. This is known as a 'conditional sale'.

A basic tax point for a conditional sale is created at the time you supply the goods to the customer, which is when you should account for the VAT on the full value of the goods.

Dave

Hi Dave,

I was surprised to read your quote about a 'conditional sale' because it seems to contradict other information on the HMRC website. In particular:
"If the supplier receives part payment before the date when the supply takes place. The time of supply becomes the date the part-payment is received "
(this is from: http://www.hmrc.gov.uk/vat/managing/returns-accounts/tax-points.htm )

I have since contacted HMRC and they explained that the 'conditional sale' information applies where you deliver the goods first, then receive installment payments later. They said that if the installment payments are received before the goods are delivered then the time of supply for VAT purposes is when then payment is received. You may want to check this advice with them on 0845 010 9000.

Cheers,

Thanks Mark for the clarification. It bothers me that I would need to change the vat retun figures manualy though as I like to have it shown in my transactions how I reach my final figures, so maybe my best way is to cancel the payments in advance arrangement altogether.

Thanks Dave

Hi David,

Yes, dealing with advance payments is more complicated than it should be in Solar Accounts. We hope to improve this area in future.

Regards,

Hi Dave, Mark,

Yes, indeed that's something like the way we work.
However we invoice the client in advance in some cases and receive payments in instalments. As we operate cash accounting for VAT purposes we always take the date of the monies paid as the date for VAT purposes. In some instances we have clients who could straddle VAT periods and may only have part paid an invoice for VAT purposes.

I believe the conditional sale only applies to goods and only when its not a continuous act. For the purposes of services or goods that are supplied on an ongoing basis the point of tax is the invoice date or payment date which ever is earliest. That's my interpretation of it anyhow.

More info can be found here:-

http://www.hmrc.gov.uk/vat/managing/special-situations/instalments.htm#2

Joe

Hi guys,

Ok so we seem to have covered the definition of a tax point when money is received against a service you provide, but surely the situation is different when you are the one paying out for a service. Even though a tax point is being created for the supplier at the time of him receiving a payment, it seems that tax point does not apply to the customer as the customer can only reclaim vat when he receives the actual vat invoice. Isn't that right? Follow the above link and go to the bottom of the page to see the relevant section.

I guess one way to get over this would be to insist on a vat invoice from your supplier every time you make a payment to him, but this is not always practical.

Dave

Hi Dave,

Yes, it seems that the tax point for the customer can be different to that of the supplier in some cases. This seems to be one of the many inconsistencies in the VAT rules!

Cheers,