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D
DG81
January 3, 2024
Question

Car Leasing - VAT charged at 20% on invoice but only 50% of the VAT can be reclaimed on VAT return, how do I record this in Quickbooks?

  • January 3, 2024
  • 1 reply
  • 0 views

Variations of this question have been asked before but I've only seen incorrect responses so please bear with. My situation:

 

I am leasing a car through my business, I have received an invoice for:

 

Initial rental of: £3646.86

+ VAT @ 20%: £729.37

For a total of: £4376.23

 

I have been charged and will pay the VAT of 20% but, as the car is available for some private use, I can only reclaim half of the VAT when I submit my VAT return (referred to in some places as a '50% VAT restriction').

 

How can I set up my QB entries so that the expense entry captures the full amount paid to the lease company (£4,376.23) but when I submit my VAT return, only half of the VAT paid is claimed back (£364.69 instead of £729.37)?

 

I've seen 'solutions' where the lease payment is split in two, with VAT @ 20% charged on one half and VAT @ 0% charged on the other half. This doesn't work as the invoice total doesn't marry up.

 

I'm sure this must be a common issue, I don't know why there isn't an obvious feature for this in QB but hope someone can help with a definitive answer! Thanks.

 

 

1 reply

S
Shania_C
January 3, 2024

Allow me to share some insights about your VAT for car leasing.

 

If your organization is VAT-exempt, such as an educational academy or an eligible charity, then different rules apply. In case you purchase some items for both business and personal use, you can only claim the VAT proportion that is related to your business. To support your claim, you must maintain records showing how you arrived at the business proportion of the purchase. Additionally, it is mandatory to have valid VAT invoices.

 

To start with, you need to create a VAT Payment with a VAT rate of 20%. Next, you should record your invoice for the Initial Rental amount of £3646.86, and apply the VAT you created earlier to get the total amount. After that, this would lead you to record a VAT Refund.

 

Here's how: 

 

  1. Go to Taxes and select VAT (Take me there).
  2. Select the All returns dropdown menu, then choose the specific VAT period you need.
  3. Select the View Summary dropdown menu, then select Record Refund.
  4. Select the bank account the refund has gone into.
  5. Make sure you've selected Refund under Payment Type.
  6. Enter the refund date and amount in the appropriate fields.
  7. Add a memo if needed.
  8. Select Save.

This will create a new transaction in your books.

 

To ensure you record the account accurately, I recommend reaching out to your accountant.

 

If you want to record a VAT payment in QuickBooks Online, you will be recording it against a specific VAT period instead of transferring money to HMRC, here is an article: Record a VAT payment or refund in QuickBooks Online

 

Please do leave a reply if you have further questions or clarification, the Community is here 24/7. Keep Safe!

    D
    DG81Author
    January 4, 2024

    Thank you for your response! So, just to clarify; the VAT refund is a refund from me/my business to HMRC?

    A
    Ashleigh1
    January 4, 2024

    Hello DG81, so the information you got given above in regards to the refund information given is not correct for your query. You should record the invoice as normal with 20% VAT on the net amount. Then you can use the adjust option on the return to adjust box 1 and reduce it by the required amount. In regards to which adjustment account you should choose for the adjustment, you should speak to an accountant if you are not sure which to select. 

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