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Within the Fees Ledger practice's can be setup in a number of ways, depending with the VAT liability is to be treated.
1. Normal Invoice
By selecting this option within the Fees Ledger Options, general tab the practice would send an invoice document to its client. The practice is liable for VAT as soon as the invoice is raised. For example, an invoice is posted on the 1st January for £100 at 17.5% VAT rate (£117.50 gross). This will produce at VAT liability of £17.50 for the practice, which will be liable on the 1st January.
The VAT liable is recorded in the Fees Ledger within in the VAT on Output nominal code for the invoice. Click here for further details on nominal movements for a practice posting 'normal invoices'.
The VAT liability can be reported on within Fees by using the VAT report and the nominal postings report
2. Low turnover firm (cash accounting)
This is a method of cash accounting, which can be used by a practice whose turnover is below a certain threshold. By selecting this option within the Fees Ledger Options, general tab the practice would send out an invoice document to its client. The practice is liable once the receipt has been matched to the invoice. For example, an invoice is posted on the 1st January for £100 at 17.5% VAT rate (£117.50 gross). The practice receives the receipt for this invoice on the 20th January and this is immediately matched. By matching the receipt to the invoice a VAT receipt is produced, making VAT liable as at the 20th January.
Note: The VAT is liable on the date of the receipt. For example, if a cheque was entered for the 20th January VAT is liable at this date.
As the VAT is not liable when the invoice raised, the 'pending' VAT element is posted to the VAT reserve nominal account. Once the receipt has been received and matched to the invoice the VAT is transferred from the VAT reserve nominal account to the VAT on outputs nominal account.
Click here for further details on nominal movements for a low turnover firm.
The VAT liability can be reported on within Fees by using the VAT report and the nominal postings report.
3. Not a Low turnover firm but invoices are normally posted as proforma (cash accouting)
This is a method of cash accounting, where a proforma invoice is sent rather than a normal invoice. A proforma invoice (also known as a payment request note) can look similar to a normal invoice except that it formally states it is not a VAT document. The practice is liable once the receipt has been matched to the proforma invoice. For example, a proforma invoice is posted on the 1st January for £100 at 17.% VAT rate (£117.50 gross). The practice receives the receipt for this proforma invoice on the 20th January and this is immediately. By matching the receipt to the proforma invoice a VAT receipt produced, making VAT liable as at the 20th January.
Note: The VAT is liable on the date of the receipt. For example, if a cheque was entered for the 20th January VAT is liable at this date.
As the VAT is not liable when the invoice raised, the 'pending' VAT element is posted to the VAT reserve nominal account. Once the receipt has been received and matched to the invoice the VAT is transferred from the VAT reserve nominal account to the VAT on outputs nominal account.
Note: A payment request note is posted to the debtors reserve account instead of the debtors control account
Click here for further details on nominal movements for proforma invoices.
The VAT liability can be reported on within Fees by using the VAT report and the nominal postings report.