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bigduckontax, Accountant
Category: Tax
Satisfied Customers: 4945
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We asked a company that owed us money to make payment to a

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We asked a company that owed us money to make payment to a creditor, problem is we didn't tell them. We simply put our creditors bank details on the invoice, we issued the VAT invoice with our VAT number on. The creditor has paid the VAT on the funds received (after an inspection, with penalty) I am now concerned that we may have not only "messed up" with the VAT (even though the tax has been paid) but done something wrong in respect of our own corporation tax or some other company law in the UK - the invoice we issued has not been processes through our accounts system as we never received the funds from it.
Hello, I'm Keith and happy to help you with your question.
It has taken me a bit of time to get my head around this one! You have paid a creditor indirectly and they have correctly accounted for output tax. You have the creditor's invoice to support your re-claim of input tax. You told a debtor to pay a third party directly.
I suggest that the book keeping entries might be:
Debit Costs and VAT, Credit Suspense [creditor's invoice].
Debit Suspense, Credit Sales and VAT [your invoice]. You have received the relevant funds, but not in cash, merely through a suspense accounts.
The VAT as far as your organisation is concerned will simply come out in the wash as it were with the next quarterly return. Your Corporation Tax position will also be resolved at the year end as both sales and costs of sales have been entered in the books of account.
I do hope I have helped resolve your conundrum. May I suggest that you do not do this again in future? Also don't forget to inform debtors and creditors what you have done to enable them to correctly account for moneys.
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