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Post Info TOPIC: Client repays customer
Jay


Senior Member

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Client repays customer


Partnership received £800 during 2016/2017 for work undertaken.

Customer unhappy with the work, threatened legal action and client eventually repaid the £800 during 2017/2018. No legal fees or order to pay.

Would appreciate views on how to show this within VT.   I have considered few options that will all give the correct figures   but some must be wrong  no

 

Thank you

 

 

Jay

 

 

 



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Master Book-keeper

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Hi Jay

Personally I would record it as a deduction against  income.  If the original was paid against an invoice then Sales Credit Note and paid from the bank against the customers account, which will nett it off.

If not then PAY from the bank against income, you'll get a warning pop up which you can ignore 



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John 

 

 

 Any advice given is for general guidance and professional advice should be sought applicable to your circumstances.

Jay


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Date:

Good morning John,

That was my first option, many thanks for your assistance.

For some reason I had concerns about the issue crossing 2 accounting periods, but could not find any reference to this to put my mind at rest.

 

BW

 

Jay

 

 



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Master Book-keeper

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Hi Jay

Yes, that crossed my mind too, but the latter transaction was decided in the latter year, so personally I think it's acceptable. What do others think?



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John 

 

 

 Any advice given is for general guidance and professional advice should be sought applicable to your circumstances.



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Leger wrote:

Hi Jay

Yes, that crossed my mind too, but the latter transaction was decided in the latter year, so personally I think it's acceptable. What do others think?


 Hi Jay/John

My only concern would be that you would now have the 2016/2017 turnover overstated by £800 and the 2017/2018 understated by £800 but in saying that as long as you can document the evidence showing the refund has been paid and was not a deliberate attempt to manipulate the turnover I would be happy to account for it by reducing 2017/2018 Income.

Would the £800 make a big difference to the accounts in both years, as in did they pay tax on this amount in 2016/2017?



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Doug

These are only my opinions of how I see things and therefore should not be taken as advice

Jay


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Date:

Hi Doug,

Thank you for your reply which highlighted my concern.

2016/2017 partnership profit £14k with neither partner having a tax liability on personal SA Returns

2017/2018 partnership profit £7k   with neither partner having a tax liability on personal SA Returns. (with the £800 being deducted from income).

So no tax implications for either year.

Doing it any other way than suggested would be a paper exercise with no loss/gain to HMRC, but was not sure if HMRC would see it that way.

 

BW

 

Jay



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Master Book-keeper

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Hi guys
Its a question of materiality so my understanding generally if not more than
0.5% of turnover
1% of total assets
5% of pre tax profits
= not material.

It fails on the last. How about the 1st?

Is just a paper exercise, but might be worth doing.

Interested in what Shaun would suggest.

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Joanne  

 

Winner - Bookkeeper of the Year 2015, 2016 and 2017

Thoughts are my own/not to be regarded as official advice,which should be sought from a suitably qualified Accountant.

 



Guru

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Date:

Jay wrote:

Hi Doug,

Thank you for your reply which highlighted my concern.

2016/2017 partnership profit £14k with neither partner having a tax liability on personal SA Returns

2017/2018 partnership profit £7k   with neither partner having a tax liability on personal SA Returns. (with the £800 being deducted from income).

So no tax implications for either year.

Doing it any other way than suggested would be a paper exercise with no loss/gain to HMRC, but was not sure if HMRC would see it that way.


 Hi Jay

Seeing as there is no difference to the tax liability in whichever year it is accounted for, it certainly would not be worth HMRC looking into it.



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Doug

These are only my opinions of how I see things and therefore should not be taken as advice



Guru

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Date:

Cheshire wrote:

Hi guys
Its a question of materiality so my understanding generally if not more than
0.5% of turnover
1% of total assets
5% of pre tax profits
= not material.

It fails on the last. How about the 1st?

Is just a paper exercise, but might be worth doing.

Interested in what Shaun would suggest.


 Hi Joanne

Didn't see your post when I replied was not trying to discount what you said its just that I am very slow at typing!



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Doug

These are only my opinions of how I see things and therefore should not be taken as advice



Master Book-keeper

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Artois wrote:

 Hi Jay/John

My only concern would be that you would now have the 2016/2017 turnover overstated by £800 and the 2017/2018 understated by £800 


 But has it been over/understated Doug?

at the end of the first financial the figure was correct.  They've only refunded because the customer has kicked up a stink, and rather than face legal action, they've settled.  That decision was taken in the second year and IMO should be reflected in the second year.

I could be wrong, but that's how I view it. 

 

Thanks for the reminder on the materiality test Joanne, no doubt it fails on turnover as well. That only applies if the income shouldn't have appeared in the 16/17 accounts, yes?



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John 

 

 

 Any advice given is for general guidance and professional advice should be sought applicable to your circumstances.

Jay


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Date:

Thanks to you all for your replies, really appreciated. 

I have just spoken with HMRC helpline and eventually transferred to a technical inspector. 

Extremely helpful, and  said his response was based on how to deal with the repayment only as 2016/2017 income was correctly accounted for at the time.

Rather then reducing 2017/2018 income to cover the repayment, treat it as an expense  "other allowable  business expense"

BW

 

Jay

 

 

 

 

 

 

 

 

 



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Master Book-keeper

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Hi Jay

Thanks for the update, and seems fair enough.



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John 

 

 

 Any advice given is for general guidance and professional advice should be sought applicable to your circumstances.



Guru

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Date:

 

As I said my only concern was that the refund had a direct link to events in the previous years accounts and the turnover, but if HMRC say that its fine then happy days.



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Doug

These are only my opinions of how I see things and therefore should not be taken as advice



Master Book-keeper

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Date:

Edited out. Changed my mind about what I posted.

 



-- Edited by Cheshire on Wednesday 11th of April 2018 08:15:38 AM

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Joanne  

 

Winner - Bookkeeper of the Year 2015, 2016 and 2017

Thoughts are my own/not to be regarded as official advice,which should be sought from a suitably qualified Accountant.

 



Senior Member

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Interesting response from HMRC.

We'd have raised a credit note against the original invoice here.

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Julie



Master Book-keeper

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Hi Julie

The original invoice had been paid from what I can gather, so the client also needed refunding. Where would you have allocated the refund to?  (I'm assuming this is a one off customer) 



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John 

 

 

 Any advice given is for general guidance and professional advice should be sought applicable to your circumstances.

Jay


Senior Member

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Posts: 195
Date:

Thanks for the continued updates.

16/17 cash payment for work done, included in accounts as correct at the time. 

Mid 17/18 needed to be repaid.

Cannot use a credit note as don't think they will be using our clients again as they threatened to sue them.

Neither year created a tax liability for either partner.

I tend to think HMRC have taken a sensible approach.

BW

 

Jay

 

 



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