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Level 2 mock paper Feb 2010 Vat query

  • 4 posts
  • # 74844

Hi

Can anyone help me?

In this paper the answer for VAT box 7 (total value of purchases and other inputs) includes a bad debt figure. I know that VAT for bad debts are reclaimed via the input tax box but all the examples I've seen in my Kaplan books do not include the net bad debt figure in box 7?

I've looked at the HMRC web site but I can't find anywhere that says you should include the net bad debt figure in your inputs.

Are the Kaplan books incorrect in their examples?
  • 14 posts
  • # 74850

Hi there,

as far as i'm aware the net value for the original sale from which the bad debt has arisen has already gone through a vat return, so doesnt need to again.

Im looking at my osborne book on VAT and can't see that the net value is used anywhere on the vat return, only the VAT value for the bad debt relief is on the vat return.. but dont quote me on that!! :)

I think box 7 and 8 are only looking for sales and purchases, supplies etc. Hopefully someone else will give a definite answer to that though!! But I dont think the books are wrong as mine agrees with it :)

My books example (which claims bad debt relief) for box 7 has Purchases on credit less credit notes, Cash book, Petty Cash and EU Aquisitions.

Edited at 04 Oct 2011 04:36 PM GMT
  • 4 posts
  • # 74874

Thanks Jen.

I've got on to the ICB and they confirm that their test paper answer is correct and that that box 7 (total value of purchases and all other inputs excluding any VAT) should contain purchases and the net bad debt figure.

Their view is very clear but I can't find any documentation to support it. The fact that your books don't mention it either seems to me that this should be an unusual situation but it is very basic and I'm sure bad debt and VAT will come up in the exam (as well as real life) and I want to make sure I've got it right.

Does anyone know any more?
Timm
  • 88 posts
  • # 74875

Hi Lemmie,
Maybe this will help you.  The VAT element of bad debt can only be reclaimed when the debt is at least 6 months old from the date of supply and the debt has been written off in the business accounts as a bad debt (expense item). The VAT portion would be posted to the DR side of the VAT account. The claim would be entered in box 4 of the VAT return.
Liz D
  • 273 posts
  • # 74876

Hi All

One of the things I deal with in real life for clients 'constantly' and is very important that you understand it - this explains it far better than I can.

www.hmrc.gov.uk/vat/managing/reclaiming/bad-debts.htm  (edited to show right link!)

Good Luck

Liz

Edited at 05 Oct 2011 11:23 AM GMT
  • 4 posts
  • # 74877

I do understand that you reclaim the VAT on a bad debt in box 4. It is the net figure inclusion in box 7 I don't get. I looked at the HMRC article and it talks about box 4 not box 7
Liz D
  • 273 posts
  • # 74880

just been on to the HMRC & ICB - this going to take a while.

Edited at 05 Oct 2011 11:57 AM GMT

Edited at 05 Oct 2011 12:11 PM GMT
Timm
  • 88 posts
  • # 74897

Hi Lemmie,
If you go to ICB website, do a seach entering " news/468 " there is an ICB example how to complete a VAT return including bad debt.  
  • 4 posts
  • # 74908

Thanks Timm

This is a lovely clear example which does not include the net bad debt in box 7. See below:

Notes on VAT Return

  • Box (4) This comprises VAT on purchases for quarter, plus VAT on petty cash expenditure and VAT associated with the bad debts. Bad debt relieve is claimable on Raw Farms and Crescent Motors only (6 month rule) 
  • Box (7) This comprises net purchases for the quarter plus petty cash expenditure net for the period
This is exactly how I understand the treatment of a bad debt in a VAT return and is reflected in my Kaplan books. How then can the ICB have responded to my query on their mock paper answer with and I quote from the email I received "
In answer to your question, the value of box 7 is made up of all purchases plus bad debt. "

Surely both of these scenarios cannot be true?
  • 14 posts
  • # 74919

Definitely confuses me!! I wonder if anyone can find a definite answer, but maybe if the ICB says include it in box 7, then if it comes up in an exam, include it, then if it gets marked wrong you can query it again!!
  • 14 posts
  • # 74920

http://www.book-keepers.org.uk/t37072847/bad-debt-relief-on-the-vat-return/ Could this be talking about the very same exam paper? - Still doesn't make sense!!
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