Any accountants? VAT on sales rebates

[Robbie G]

Had a dilemma at work today.

If we sell a batch of products to a customer and say in the year they accumulate sufficient to be entitled to a rebate of some kind, how do we treat the VAT.

Initially the output VAT is paid on gross sales but do we then treat the rebate vat as output VAT, input VAT, or totally ignore and maintain output VAT liability on gross sales?

Many thanks!

[herulach]

AS far as i understand it the customer claims the VAT back from her majesty, not you, it shouldnt affect your VAT liability at all.

[Robbie G]

Well, the customer claims back the VAT they paid on the purchase from us, yes, but my question is how we treat the output VAT we paid when we sold the product to the customer with respect to any rebates on that sale.

[herulach]

Again, im not an accountant, but i have a basic grounding, and i dont think it affects your liability at all. The customer gives the money to you, you give it to the revenue, the revenue gives it back.

You certainly cant claim it back if thats what youre getting at, if that were the case the revenue would be subsidising you 17.5% of your sales.

[autopilot]

I am VAT registered, but my business is very simple. I am not exactly 100% sure what you mean, but i don't think it makes any difference at all what they do. Just return your VAT (minus any inputs) as usual. It all ends up in the same place at the end of the day.

"how we treat the output VAT we paid when we sold the product to the customer " is the bit that does not make sense to me. Why are you paying VAT when selling something? They pay you VAT, which you just hand over to HMR&C at the end of your VAT period, after deducting any VAT you have spent yourselves. VAT returns are relativity simple, there is only like 9 boxes on the form.

You dont get rebates on any sales, that would be fraud. Only purchases.

But it very likely i have completely misinterpreted what you are asking.

[Robbie G]

Why are you paying VAT when selling something?

They pay you VAT, which you just hand over to HMR&C at the end of your VAT period

Try and reconcile those two comments!! Everyone pays VAT when they sell something if they're registered - the customer pays you and you pay HMRC!

Thanks for the reply though seriously, but what I'm getting at is effectively how to deal with VAT on discounts issued after the point of sale. E.g. I sell £100 of goods to Joe Bloggs who, one month later, claims £10 rebate. I pay him his £10 rebate, and AT THIS POINT, how do I account for VAT.

[Saracen]

I can see exactly what you're getting at, Robbie.

If you sell £1000 worth of goods, you add £175 and the customer gets an invoice for £1175, which he pays.

You pocket £1000 and pay £175 to HMRC. The customer, if he's VAT-registered, treats the £175 as VAT on inputs, and claims it back or offsets it against his liabilty on outputs.

At that point, everything's fine.

But ... 6 months (or whatever) later, he qualifies for a rebate, which is kind of like a retrospective discount. Say he gets £100 back. At that point, the goods he actually bought only cost him £900, so he should have paid £157.50 and actually paid £175. So he's overpaid the VAT by £17.50 IF that rebate/discount is treated in the same way that, for instance, a refund for goods returned would be.

In which case, you've overpaid HMRC because you paid them £175, which was right at the time, but no longer is.

Logically, as VAT is a tax on transactions at the margin, both you and the customer have a VAT adjustment to make. You have one because you paid the £175, and he has one because that's what he reclaimed (if he's VAT registered).

I can see the problem, and at least a couple of ways it could be handled. But I'm rusty enough that I have no idea whether you'd just treat this in the obvious way and adjust by putting it through as a credit (and therefore let the VAT sort itself out) or whether HMRC have special rules.

I suspect you'd just slap it through as a credit, but if it were me, I'd want that direct from the horses mouth .... by which I mean an official HMRC instruction, not some bloke on a forum. I suggest a phone call to your local VAT office.

[schmunk]

Stand back - Chartered Tax Advisor coming through...

I don't really do VAT day-to-day, but I understand that where a contingent discount is made, output VAT must initially be charged on the full amount, but then an adjustment to output VAT may be made at a later date when the discount is earned.

Essentially, what Saracen said.

Now ask me about employment taxes...

[JPreston]

...
I don't really do VAT day-to-day, but I understand that where a contingent discount is made, output VAT must initially be charged on the full amount, but then an adjustment to output VAT may be made at a later date when the discount is earned.

...

IIRC, wot he said.

[herulach]

My apoligies, i thought you were talking about the customer claiming a VAT rebate, not a discount from yourselves.

[IBM]

Stand back - Chartered Tax Advisor coming through...

I don't really do VAT day-to-day, but I understand that where a contingent discount is made, output VAT must initially be charged on the full amount, but then an adjustment to output VAT may be made at a later date when the discount is earned.

Essentially, what Saracen said.

Now ask me about employment taxes...

Three cheers for Chartered Tax Advisors!!!



Now there's something I never thought I'd say

[autopilot]

Oh i get you now. You mean if he receives a future rebate/discount from you.

[Robbie G]

Hi all. Thanks very much for the reply. Adjust output VAT at the point of paying the rebate seems to be the sensible answer. Thanks again. I just love the fact I can sign off accounts now even though there's a long way to go until O qualify! I'm writing letters to all the local small businesses and offering my services. Nice little side earner

[schmunk]

What are you studying, Robbie?

[alsenior]

Now ask me about employment taxes...

ok then you asked for it.

i am a student and i pay tax after i earn over £400 a month. can i claim this extra back or not i seam to get mixed reactions from people i know/

[JPreston]

Doesn't matter if you are a student, nun, pensioner, or in a coma; if you earn more than your personal allowance then you have a tax liability.

EDIT: although come to think of it if you don't work all year round you may indeed be entitled to it back. i.e. if you work one month and earn £1000, your employer's PAYE system would treat you as though you are earning £12,000 p.a. and paying tax accordingly, but if that one month is your only income for the year then you would be well under your allowance. So probably yes you can, depends on your circumstances.