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karl-brightcx-co
May 23, 2021 12:43 PM UTC
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How do I ensure VAT tracked for multiple business purchases made personally by Director during business startup?

Business officially formed 4th April 2021, voluntary VAT approved from 1st May 2021. QuickBooks all setup for automated Tax submission, but only capturing VAT from 1st May 2021. During business setup I made purchases for office equipment, furniture etc from my personal account dating back to 30th March 2021. I have NOT yet submitted my first VAT return and want to ensure VAT from all the business related purchases from my personal account are included. My thoughts are: Manual creation of expense claims for Mar/Apr/May (excel sheet) tracking purchase line items, VAT etc. Then entering journals and expenses in QuickBooks. My question is, assuming there will be 3 expense claims (one for each month), in QuickBooks do I just journal the overall figure for each month OR do I need to journal each and every transaction? So 3x transactions vs approx 25 transactions? The overall aim is to ensure VAT on all the purchases is tracked in QuickBooks so I can include it in my initial VAT return. Thanks Karl
EmmaMAnswer
May 28, 2021 3:59 PM UTC

Hello karl-brightcx-co, The scenario the other commenter has included with the mark as filed would be for transactions made prior to the filing date that you did not want to include in the return for May as you for example had already included in return direct to HMRC. if you in fact wanted to include them what you can do as you have already added in and marked that return as filed. would be to add a new transaction with the amount with the old date and remove the original one which should create an exception in the current return or yes you could adjust the box. We'd advise confirming with the accountant before making any adjustments and that the VAT adjustment account you set up will need to be a liability account, not a bank account.

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4 replies

JessT
JessT
May 23, 2021 2:42 PM UTC

Hello, Karl!

 

Congratulations on your new business! I'm truly amazed by your resiliency to start a new business despite the current situation. Let me help you with your VAT.

 

Let's say you submit your return quarterly. The first step is you'll record the purchases dated in March, so their taxes are reported in the first quarter. 

 

Usually, we record purchases with personal funds using journal entries. However, journal entries do not reflect VAT amounts on tax returns. So, we'll put the investment into a petty cash account first, and use it to pay the purchases by recording expense transactions. This type of transaction will report VAT in tax reports.

 

Journal Entry: A debit to Petty Cash and a credit to Owner's Equity.

 

Record the purchases as expense transactions with VAT

 

After recording the purchases, you will need to change the starting month of your VAT Settings to March. That way, you can mark the first-quarter return with a reclaimable tax as filed. 

 

 

Prepare the report in the first quarter, and mark it as filed.

 

After marking the first-quarter return as filed, go back to your VAT settings, change the start month to April, and turn on the MTD option. The VAT will be moved to this period. See about submitting VAT Return for your additional reference.

 

I'm just a comment away if you need further assistance with your taxes. Take care and have a good day!

karl-brightcx-coAuthor
May 23, 2021 7:14 PM UTC

OK thanks, I think I understand.

 

So, I’ve just setup my Petty Cash Account (zero balance).

 

Can you check the following steps (my understanding) is correct please?

 

1) Credit the Business Chequing account with sufficient finds to pay the 3 x expense claims (e.g. £2000 – Mar £500, Apr £1000, May £500).

2) Transfer the £2000 from business checking account to petty cash account (using transfer as I won’t physically be withdrawing the funds).

3) Create journal entry for £500 (Mar)  Petty Cash (debit) > Owners Equity (credit)

4) Record as a single purchase/expense (totalling £500) to payee (me – the director owed the money) from the Petty Cash account.

5) Create journal entry for £1000 (Apr)  Petty Cash (debit) > Owners Equity (credit)

6) Record as a single purchase/expense (totalling £1000) to payee (me – the director owed the money) from the Petty Cash account.

7) Create journal entry for £500 (May)  Petty Cash (debit) > Owners Equity (credit)

8) Record as a single purchase/expense (totalling £500) to payee (me – the director owed the money) from the Petty Cash account.

9) Use online banking to pay (me – the director owed the money) as 3 separate bank transfers (£500, £1000, £500)

10) When quickbooks synced with bank account, match the transactions.

11) Follow the instructions on changes to VAT to file etc.

 

Is that correct?

 

Assuming I use 3 separate journals for Mar, Apr, May – should the date of the journals be the same date as the 3 separate manual expenses claims (i.e. 31/03/2021, 30/04/2021 and 31/05/2021) or match the date of the physical payments from Business Bank to Personal bank?

 

Is there perhaps a way of me being run through this step-by-step over the phone?

 

Another question:

When I credit the business account from my own equity (as a director), I have previously just transferred the money over bank>bank and then categorised it as ‘DEPOSIT: Uncategorised income’.

  1. is this correct? Should I be categorising it differently?
  2. Do I also need to journal it? If so should it be Owners Equity to ‘something’?

 

Thanks

 

Karl

 

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