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vat control account

Hi, I am confused about how vat is paid to HMRC. Is the balance brought down on the vat control account the amount owed? Can someone explain why purchase rerturns is on the credit side, does that mean we have to pay vat on our purchase returns? I'm also confused why discounts received is on the credit side. Thanks


  • Pian32Pian32 Registered Posts: 144
    Lets look at a purchase made. You buy standard rated Vat items totalling £1200. The journal would be:

    Purchases £1000
    VAT £ 200

    Bank/purchases ledger £1,200

    This means a purchase is adding to the Debit side of VAT. The balance brought down if this is the only transaction is £200 on the credit side so HMRC owe you £200 (it would be brought forward as a debit)

    From the journal we can see that if we reversed part of the transaction either from a refund or discount the transaction would appear on the other side of the account. It's not that you're paying VAT on the refund or discount but not receiving the VAT back that you haven't paid once everything has gone through.
    AAT Level 4, MAAT
  • moltisanti98moltisanti98 Registered Posts: 7
    Hi thanks for the reply I understand the first bit. The vat would be 200 carried down on the debit side then 200 brought down on the credit side? Why do HMRC owe 200 if it was from a purchase? Iv been told that discounts received go on the credit side because your paying less vat, so purchase returns is a refund of vat so its on the credit side? How do we work out how much vat goes to HMRC?
  • Pian32Pian32 Registered Posts: 144
    The VAT is only paid by the end user but the transactions occurs through the seller. The VAT you pay to HMRC is actually from whoever you sold the item to.

    If you purchase something for £200+VAT (£40) and sell it for £400 +VAT (£80) then you will be giving HMRC £80 but reclaiming £40 meaning the final amount on that item from you is £40. The first £40 is paid on your behalf by whoever you bought it from and you pay the amount extra accrued on selling it on. At the end of the process HMRC will have received the VAT that makes up the final sale price.

    The total VAT you end up owing/receiving depends on the make up of your sales and purchases.

    You need to enter all the sales VAT as credit and purchases VAT as debit (along with any refunds/discounts) and the final difference is what is owed/received. More on the credit side you owe more on the debit side you are owed.
    AAT Level 4, MAAT
  • moltisanti98moltisanti98 Registered Posts: 7
    I think I understand it now cheers mate that really helps.
  • Pian32Pian32 Registered Posts: 144
    No problem. You'll do more on VAT and control accounts in Level 3.

    Any more questions about VAT might be better asked under the Indirect Tax section from the level 3 forum as you'll be seen by more people covering that topic.
    AAT Level 4, MAAT
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