Accounting For VAT On Contras
Transactions paid by contra can be confusing, but it is important that you treat them correctly in your records, particularly as you need to ensure you treat the VAT element correctly.
Some common errors are listed below:
- Whenever you sell at auction – be it livestock, machinery or produce – commission and levies will be charged against sale proceeds before the net amount is paid to you. These charges attract VAT but are often overlooked when completing VAT returns and remain unclaimed. Even small amounts can add up over the year, so they are well worth looking out for.
- If you purchase new plant or perhaps a commercial vehicle, and put an item in part-exchange, you must declare the output VAT included in the part-exchange allowance. The full amount of input VAT can then be claimed on the new item. Your supplier should issue you with adequate paperwork showing the separate amounts of input and output VAT.
- Sometimes you might settle an outstanding debt by, for example, providing some of your own labour without charge to your supplier. You must remember that, even though you may not raise an invoice, the value which is set against the debt will include standard rate output VAT, which you must declare. This applies even if there is no input VAT charge included in the amount you owed the supplier.
If you need more help or advice on dealing with contra entries and the associated VAT please contact us.
Please note: This article is a commentary on general principles and should not be interpreted as advice for your specific situation.
Image courtesy of Pong at FreeDigitalPhotos.net
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