VAT - Cash basis of accounting

Sarah1916

Hi,

I was wondering if someone could please clear something up.

My partner works off a cash basis of accounting.

He records income when he receives payment from his customers.

In relation to purchases/expenses, he records these when he makes payment for the goods.

For example, he purchases the majority of his goods from one main supplier. He has a credit account with this supplier so does not pay for the goods as received. He pays larger bulk payments regularly.

For the purposes of the bi monthly VAT return he has been recording his purchases (and the VAT on such) based on the actual payments made during that 2 month period. I.E. For the July/August VAT period, he may have invoices from this supplier totalling €5k. He may make payment of €7k to the supplier as there were some outstanding invoices not paid since previous months. the amount included for VAT purposes is the VAT paid on the €7k.

Does anyone believe that the purchases recorded for this period should be the €5k invoices relevant to that period?

thegolfer

Sales are okay on the cash basis, however depending on the profile of the customer.

Purchases should be the invoices issued and not the payments. This is the default position.

Purchases outstanding for 6 months or more should be credited back, and adjusted in the VAT return.Deduction can then be taken once those invoices are then subsequently paid.

Immy

Purchases VAT is calculated on an invoice basis. So the date on the invoice is the period you claim the VAT

Hence if he has purchases of €5K in the period that is what he should claim the VAT on.

He should do a clean up this period and do it on invoice basis going forward