When a company’s turnover reaches a specific threshold, it must be registered for VAT, but it is also possible to register on a voluntary basis, as this has some benefits.
Accounting for VAT on your goods and services is a complex matter, as some goods are subject to VAT and others aren’t, which is why VAT is often left to management accountants. If you fail to account for VAT correctly, you may find that you face a penalty from HMRC.
Treatment of goods for VAT purposes can also differ if they are damaged, lost or stolen. There are specific rules regarding to the VAT charged on these items, all dependant on whether the goods were supplied, responsibility at the time of loss or damage, and any credit that has been given to the customer.
Stolen goods
Once you have sold goods to a customer, it is possible for them to be stolen from the business premises. To decide whether VAT is due on the stolen items, you must ascertain who was responsible for them. If the customer had fully paid for the goods and you were storing them on their behalf, VAT would be due. If responsibility lies with you, VAT will be due if an invoice has been issued. If no invoice has been issued, there won’t be any VAT due as no goods have been supplied to the customer.
Damaged or destroyed goods
Goods often become damaged, perhaps causing some minor blemishes like dents or scratches. So that you don’t make a complete loss on the item, you may decide to sell it at a discounted price, or you may be able to achieve scrap value for it. Regardless of how you decide to sell the damaged goods, VAT will be due in the normal way. If goods are completely destroyed so that you can’t even sell them at a discounted price, you will hand them over to the insurer so no VAT will be due. In this scenario, HMRC will require documentary evidence from the insurance company to prove that you have claimed for the damage.
Lost items
Losses sometimes occur in a business; perhaps goods that have been dispatched to customers haven’t arrived, for example. However, VAT may be due on the items depending who has responsibility for them. If a customer is responsible for the goods before they have been delivered to them, VAT will be due as it would be for a normal sale. If you were responsible for the goods, it will depend on whether a VAT invoice has been issued. If you have credited the customer with the amount they have paid for the item, no VAT will be due, and if no invoice has been issued, you aren’t responsible for charging VAT. This information has to be fully documented in your VAT records.
As this is a complex matter, you may want to call us for an informal chat to learn more about VAT and how it is charged.