In previous years, my accountant has done the following:
Journal entry -
Business Mileage - Amount debit with VAT 20%
Business Mileage - Same Amount Credit with No VAT
However in previous years there was only ever one Tax Code. Now in Journal Entries you have to select:
For Tax Purposes - this a sale or adjustment or purchase or Purchase Adjustment.
He has done the end of year return, but he has left this as a Sale or sales adjustment - more because he is not that familiar with Manager as most of his clients use other accounting programs. I queried this with him.
He said -
The adjustment is actually a purchase/purchase adjustment – but I’m not sure what the relevance is here of what this does in Manager (?)
Can you advise whether this needs to be set for purchase adjustment and whether this actually makes any difference for this specific transaction.
Basically what is happening here is that every year the business pays me for Business Mileage. But the company can claim some VAT on this expense. This is what the journal entry actually does. It’s not paying the business mileage but making a VAT adjustment on the monies paid over the year.
To think of it another way you could have entered only the business travel cost when the vehicle cost were first entered throughout the year. To back it out at the end of a financial period you have to use the some tax codes and sale / purchase allocation as was used when the dater was over stated when initially entered.
Having said that, it really only effects your VAT returns as sales vat is offset against purchase VAT.
I have looked at your example and unfortunately I am none the wiser as your example does not reflect the current design of Manager where journal entries now include this “for tax purposes” setting.
On my payslip, I enter the amount the business is paying me for business mileage. No Vat is ever declared here on the payslip. I just debit credit directors loan account and business mileage account. Neither account has any Vat set for this transaction.
So unclear as to whether I should set this a sales or purchase tax transaction. I am claiming back VAT from the government not paying it even though the business mileage is actually a purchase.
My problem is that I don’t know what to do. If I change this end of year return, just past two months ago - does this mean that I need to change every year since I started using Manager - as every single year end March, the tax purpose has been “set” for sales or sales adjustment as previous years - this tick box never existed back then!
So I am not sure what the procedure is for the last 6 years? I will need to check and see if my Vat return in years past actually matches what Manager says it is.
Also I am unclear whether it’s incorrect now because it’s showing as sale adjustment or if it was always incorrect in the past because of which side was debited/credited with the tax amount? My accountant says its a purchase purchase adjustment and he says he doesn’t understand the relevance of that box in Manager as I am the only client he has that uses Manager.
You are buying goods and services to run your car, you are not providing goods and services so other businesses can run their cars, So all your car costs will be purchases or purchase adjustments.
When entering new journal entries in Manager it defaults to sales adjustments. You can change that in form defaults or just clone the prior adjustment when entering a new adjustment.
In past years Manager set sales vs purchase VAT adjustments based on the sign af the amount. Which was correct / incorrect about 50% of the time for journal entry adjustments. For your specific adjustments you would have to look in detail. Probably most easily checked by setting it to the correct value now. It may not change your submitted information or may not need to have the correction reported.
I will look into this next weekend when I will have more time to go through this. I have a feeling that I will need to change the previous years as it has probably altered what was filed years ago. Fortunately it’s only one entry each year.
I think that you are right. Assuming that it is incorrect the amount is not enough to worry the government any. I will leave previous years including the most recent financial year as is even if it’s actually incorrect.
I have now set form defaults for Journal entries to have VAT as a purchase or purchase adjustment on the grounds that the only VAT transaction that ever occurs in Journal entries for my business is that particular transaction which will always be a purchase adjustment.
@Brucanna what is the general consensus of government tax revenue departments with regards to errors (user or accounting bugs that have been fixed) for previous years.
To use two examples:
Manager introduced this Purchase and Purchase adjustment or Sales and Sales Adjustment concept to fix inaccurate tax filings. In my case, we are talking one transaction a year for a small amount. But what if this fix affects hundreds of transactions resulting in a difference of thousands? This is an accounting program bug fix scenario.
Another scenario is you forget to charge VAT for several invoices for clients even though you are supposed to charge VAT being VAT registered? This one transaction for a small amount or a much larger amount or it could be 50 transactions for small amounts.
I think that there are two questions I am asking here. One, when should one fix mistakes in previous years that have been made either by user or program bug fix. Second question is whether one should correct the error in the previous year or do a journal entry in current year to reconcile the differences.
Again this is dependent on the scenario. In the user scenario, the previous years are exactly the same as when declared. However, a bug fix in Manager actually alters previous years filings so they no longer match what was filed with HMRC. This is the disadvantage of a perpetual accounts programs as opposed to one that you close off every year.
Generally, if the tax payable is affected you fix the prior year mistakes in the current year.
If it’s only a statistical adjustment, reported as sale instead of a purchase, no fix is required.
The Australian BAS Statement use to have a line item - Prior period adjustments - but that has now been removed. I guess they are less concerned as to when the event occurred compared to receiving the correct tax overall.