Value Added Tax (VAT) VAT Calculation & VAT Return form
VAT VAT on Sales VAT on Purchases VAT Payable/ Reclaimable LIABILITY because it is owed to HMRC ASSET because it is claimed back from HMRC Value added tax (VAT) is a tax on consumer expenditure. It is a tax levied by the government on the sale of goods and services within the community, and so is an indirect tax levied on the consumers. It is mainly made up of:
DEAD/ CLIC DEAD stands for: Debit Expenses Assets Drawings DEBIT TRANSACTIONS If any of these are increasing, you will need to debit the account CLIC stands for: Credit Liabilities Income Capital CREDIT TRANSACTIONS If any of these are increasing, you will need to credit the account
This shows that: VAT on Sales Liability (CLIC) will be credited with the TOTAL VAT on Sales amount VAT on Purchases Asset (DEAD)will be debited with the TOTAL VAT on Purchases amount
Imagine you work for J&N Ltd, a company that sells kitchen utensils. The following two Sales Invoices, and one Purchases Invoice were dealt with in the accounting period. What will be the VAT accounting treatment for these?
Purchase invoice ARTEL LIMITED 114 Milly Drive Way, London. N4 3TT Invoice To: J & N Limited 12 New Cross Road London, SW1 3HH
VAT Payable £256.84 VAT on Sales £843.30 (£107.30 + £736) Liability VAT on Purchases £586.46 Asset
VAT RETURN FORM (Extract) VAT due in this period on sales and other outputs (Box 1) £843.30 VAT due in this period on acquisitions from other EC Member States (Box 2) £0 Total VAT due (the sum of boxes 1 and 2) (Box 3) £843.30 VAT reclaimed in the period on purchases and other inputs (including acquisitions from the EC) (Box 4) £586.46 Net VAT to be paid to HM Revenue & Customs or reclaimed by you (Difference between boxes 3 and 4) (Box 5) £256.84
Here at The Training Place of Excellence, we aim at giving people a good understanding of accounts and in doing this; we always try to connect the teaching to the real world.