# Treatment of VAT refund



## Tricky one (24 Apr 2009)

Hi,


Could somebody please explain what the proper treatment of VAT refund is? Is it profit for corporation tax purposes and included in profit and loss account?


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## Graham_07 (24 Apr 2009)

No. it is not profit. It does not go into P & L. All figures in P&L are net of VAT.


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## callybags (24 Apr 2009)

The refund due should have been shown as a debtor on your balance sheet.

When the refund is paid the entry is:

DR    Bank Account
   CR     Debtor A/C

This clears the debtor balance and shows the money in your bank account.


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## Tricky one (24 Apr 2009)

But what should I do with received money? Is it going in balance sheet under Debtors account?


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## Tricky one (24 Apr 2009)

All right, there is nothing to do with profit and is just reflected in balance sheet. Thanks a lot for a help.


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## Graham_07 (24 Apr 2009)

VAT refunds actually received in the year is just part of cash at bank at year end. The actual double entry would be DR Bank CR VAT a/c . At year end any VAT refunds due are part of debtors/prepayments and any VAT due to Revenue is part of Creditors/Accruals on the Balance Sheet.


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## Tricky one (24 Apr 2009)

Great, thanks.


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## Domo (24 Apr 2009)

Quick question on this:

If refund was not accrued for in last year's accounts - would you just show it as an adjustment in the balance sheet?


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## Graham_07 (24 Apr 2009)

Domo said:


> Quick question on this:
> 
> If refund was not accrued for in last year's accounts - would you just show it as an adjustment in the balance sheet?


 

If VAT on some purchase/expense was not accrued in p/y and was claimed in c/y then P&L in p/y would have shown a greater profit than was due. By applying the refund against the relevant purchase/expense in c/y that would produce a correspondingly lower Profit than was due. Assuming taxpayer would not benefit or suffer from a lower or higher marginal rate between the results for the 2 years I would be inclined to just adjust in c/y. ( DR VAT a/c CR the relevant purchase/expense) The result would be the opposite of this in the case of VAT not accrued in sales. That would be my take on it but others may do differently.


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