Loan repaid by Car Hire

Aaron C Rescue

Father has bought large amounts of stock to enable son to set up in business. This is being paid back by a weekly standing order, and by the business renting a car for the father. For this purpose I have set up Sage to have a seperate 'fathers loan' bank account, as well as the seperate loan account. That way, as invoices are paid by the father they are recorded, the assets transferred, and VAT accounted for.

I have processed the car hire invoices as if it was a normal expense.
However it has just occured to me that in doing so it will cause a potential VAT error.

I'm thinking that the Car Hire invoices should not have the VAT charged, and should be processed onto Sage as T9 no VAT?

My reasoning behind this is due to the VAT charges being accounted for in the original invoice/stock/loan transactions, and Loan repayments not being subject to VAT.

If I am correct, then this means we have overclaimed the VAT by no more than £270. As the next VAT return is due in January, and our year end is in April, is it okay to put in a correction at the next return? Or should I inform them now?

Monsoon

If the car is for the father and doesn't play a part in the business, and if the payments are as part-payment for loan repayments, they indeed should be posted as loan repayments and coded T9 for VAT.

You can correct it on the next return.

Under the new penalty regime, some advisors are recommending writing to the voluntary disclosure unit to disclose errors corrected on the VAT return, simply because it if came to light later they might seek to penalise for [mistake/negligence/deliberate concealment] and by disclosing it mitigates things.

I always explain that to the client to give them the option of whether they wish to voluntarily disclose or just correct on the VAT return with no explanation (as is their right).

Aaron C Rescue

Thank you Monsoon, as ever - always helpful.

Monsoon

No problem Aaron, you're welcome