Deferred Payments - Invoice in advance of Service
I have questions about my book keeping and deferred payments - in preparation for corporation tax return.
I run a live wedding / events band. The band operates as a limited company (single director, no employees, micro entity). The company only handles the bookings / payments - the bookings are carried out by a group of contractors (sole trader professional musicians) - I book each musician individually and so every booking may have a different set of personnel.
I pay myself a salary for all directorial duties, but I invoice the company (from my sole trader business) for all services as a musician / PA lighting equipment hire etc the same as all the other musicians booked for the event.
The date of event (service) is usually between 6-18 months after the date of invoice (as couples like to book long in advance of their wedding) however we require payment upfront in three instalments.
First instalment of 25% is due within 3 days of signing the contract.
Second instalment of 40% is due no later than 4 months prior to the date of the event.
Final instalment of 35% is due no later than 1 month prior to the date of the event.
These payments are non-refundable. This payment system ties in with our strict cancellation policy to ensure we are able to properly protect our suppliers (musicians) against loss of earnings
This is how I currently have my books with Quickbooks Online:
Once a client has agreed to go ahead with a booking, we issue an invoice for the full amount (including VAT) and this is dated the same day they sign our booking contract but the due date is marked as the final balance deadline (i.e. 1 month before the date of event).
We mark the tax point as the date of invoice and account for the full amount of VAT on this date (paid to HMRC at the end of the quarter).
Then when the client makes a payment, we mark this as ‘payment received’ on quickbooks against the original invoice. Quickbooks keeps the invoice ‘open’ until the final payment has been received at which point this changes to ‘closed’.
With paying our suppliers, when the invoice to the client is generated, we also generate a ‘bill’ for each required supplier dated the same as the date of invoice with a due date of the date of event (although it will be paid once our suppliers invoice us after the event has been completed). When we pay the musician, we mark the bill on quickbooks as paid.
Having done some reading about the accounts preparation (of which our first year is due now), I am concerned now that this is the incorrect way to keep our books as really we should be marking the payments as deferred payments as they are payments received for services not performed yet…
In which case how should I treat these payments in quickbooks online (retaining the vat tax point at the date of invoice)?