VAT on Invoice to the bank ? confused

minisue · 10-07-2020 02:57PM #1

Hi,

I was speaking with someone earlier about different financing and they were saying that they issued a VAT invoice to their bank for finance but the bank will pay back less than VAT.

How does it work to claim it back during a VAT period, do you put a credit through for that VAT period or just leave on your system as an outstanding owed to you from the bank ?

I was confused by their explanation and didn't want to keep questioning !

can you help me understand some more ?

thanks

Sue

Calahonda52 · 10-07-2020 07:44PM

Have a read of this
https://www.businessexpert.co.uk/invoice-finance/invoice-discounting-or-factoring/

minisue · 10-07-2020 10:12PM

Thanks, I’m still confused from the vat perspective.

Looking at hire purchase from a bank, is the vat just credited in that same vat period with no impact ?

Calahonda52 · 11-07-2020 09:46AM

See here
https://www.revenue.ie/en/tax-professionals/tdm/value-added-tax/part03-taxable-transactions-goods-ica-services/Financial-Services/services-hire-purchase-transactions.pdf

Why is the bank being in the equation causing you a problem, its a VAT-able transaction?

minisue · 11-07-2020 11:15AM

Agree, the bank asked for a vat invoice but then paid the ex vat amount And the balance left on the account is vat only. So is this just credited off ?

Deise Vu · 11-07-2020 12:02PM

I presume in this situation you are financing an asset you have already paid cash for such as a UK imported truck. The bank wants a VAT invoice as they are now the owner until the HP terms are met but they do not finance the VAT charge as you are entitled to a VAT refund if you are buying from a dealer and in this case you are the dealer.

The easiest way to deal with this would have been to issue a VAT invoice on headed paper and not put it through your system. Then when you receive the loan you just debit your bank, credit the loan and do entries for debit interest suspense and Credit loan for the charges. You already have the asset on your books from the cash payments when you acquired it. I did this regularly in a previous job and the auditors had no problem with it.

In your current situation you not only have created an unnecessary VAT liability for yourself that will never be received from your “customer “ but you have also sold the asset. It may also cause a significant difference between sales per VAT returns and your accounts which is a compliance routine run automatically by Revenue that may attract an audit if it significant enough.

The easiest solution for you is to do a credit note for this invoice and then proceed as per the earluer paragraph. Keep the invoice and credit note with your HP file in case it crops up at a VAT audit. It is extremely common and nothing to be worried about.

Hope this helps.

minisue · 11-07-2020 01:17PM

Deise Vu wrote: »

I presume in this situation you are financing an asset you have already paid cash for such as a UK imported truck. The bank wants a VAT invoice as they are now the owner until the HP terms are met but they do not finance the VAT charge as you are entitled to a VAT refund if you are buying from a dealer and in this case you are the dealer.

The easiest way to deal with this would have been to issue a VAT invoice on headed paper and not put it through your system. Then when you receive the loan you just debit your bank, credit the loan and do entries for debit interest suspense and Credit loan for the charges. You already have the asset on your books from the cash payments when you acquired it. I did this regularly in a previous job and the auditors had no problem with it.

In your current situation you not only have created an unnecessary VAT liability for yourself that will never be received from your “customer “ but you have also sold the asset. It may also cause a significant difference between sales per VAT returns and your accounts which is a compliance routine run automatically by Revenue that may attract an audit if it significant enough.

The easiest solution for you is to do a credit note for this invoice and then proceed as per the earluer paragraph. Keep the invoice and credit note with your HP file in case it crops up at a VAT audit. It is extremely common and nothing to be worried about.

Hope this helps.

Thank you, this makes sense. Could it be dealt with like this :
credit the original invoice and put through an invoice as T9 so it stays away from Vat altogether but still on the system for records ?

Deise Vu · 13-07-2020 11:04AM

minisue wrote: »

Thank you, this makes sense. Could it be dealt with like this :
credit the original invoice and put through an invoice as T9 so it stays away from Vat altogether but still on the system for records ?

Using T9 it won’t effect your VAT but you are still carrying it in your nominal ledger. Make it easy on yourself and just do a credit note and staple it and the invoice to your HP agreement.

VAT on Invoice to the bank ? confused

Comments