To become an accomplished Clerk you first need to understand the common accounting problems and how to overcome them.

In our 4 part ScribeFest series Hannah, Jane and Jade from the Scribe team dive head first into the common accounting problems Clerks experience when managing Council’s accounts.

In the second video of our series the team provide us with some of the best practices around recording VAT.

Recording VAT can be a tedious task but if you follow these best practices you will simplify the whole process and make life a lot easier for yourself!  

Check out the video below:

Key Take-aways

Promise: streamline the VAT recording process

Helpful Principles 

1. Completing claims at least annually
2. Recording VAT separately on your invoices
3. Using a dedicated software (Scribe!) to streamline the recording process 

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Video Transcript

Another area we get a lot of questions about is VAT and which point I usually pass the phone to Hannah!   So Hannah can you give us some best practices around recording VAT?

VAT can be daunting to many people we speak to, not just Jane! If your council has a complicated VAT position then of course it is best to take advice from HMRC or a VAT specialist but generally your council will either be VAT registered and therefore required to submit VAT returns or not VAT registered but still able to claim VAT back using Form 126.

Councils who are VAT registered will be so because they have other sources of income such as hiring out a hall or a car park for example. VAT returns are generally required to be submitted quarterly but sometimes on a monthly basis.  If your council is over the VAT threshold then it will be necessary to submit your returns using Making Tax Digital.  This is intended to increase the accuracy of returns and streamline the process. 

*The normal VAT registration threshold does not apply to local authorities, which are liable to register if they make any regular taxable supplies.  HMRC's current policy is only to enforce this where the expected VAT due on sales by an authority will be at least £1,000 a year.  A council will reach that point if it has £5,000 of income that should be taxed at 20%.

Councils that are not registered for VAT tend to be smaller councils and councils that do not have much significant income other than the precept.  In this instance VAT can be reclaimed using Form 126 on the HMRC website.  Again, you will need a Government Gateway ID to log on and then you can simply enter the figure you wish to claim and upload a report showing the details of the relevant transactions.  There is no specific timing for claims in the same way there is for VAT returns but you must claim for complete calendar months.  If the claim is for less than £100 then it must be for an entire year and claims can be made going back three years so if you have taken over at a council where claims are not up to date then this may be worth looking into.  I would recommend completing a claim at least annually ideally up to the 31st March to keep things clear and neat.  

Whatever your VAT position it is really important to record VAT separately which goes back to my earlier points regarding the structure of your cashbook.  Ensure you are recording the VAT elements of invoices separately to allow you to calculate your VAT claims or returns.  Remember you can only claim VAT back if the invoice shows the VAT amount or percentage charged and the VAT number of the supplier so make sure your paperwork ties up with this.  If it is a long or onerous task to complete your VAT returns or claims then I would recommend this as something that needs addressing.

Hannah mentioned earlier about inheriting a system or a spreadsheet and not having handover and this is where I’d say claiming VAT back can get complicated. It’s not unusual for any of us to speak to a new clerk coming in who may have say 2-3 years worth (if not more) VAT to claim back. On the other hand I also know lots of people who keep their councils VAT claims upto date and manage this via their spreadsheet or alike- the one thing I hear a lot though is that “it’s not that difficult but it's really tedious”. Claiming VAT back in the way Hannah has outlined for the majority of you who aren’t VAT registered takes time and involves a very manual process of often locating and duplicating data so that you end up with something you can these use for your Form 126 schedule.When using dedicated software like Scribe though your Form 126 can be produced automatically by simply applying a date range. The Form 126 schedule that we generate is an acceptable format for HMRC and you’ll be able to simply print or download it directly from the software ready to be submitted. I spoke before about setting up your cost centers and codes when you make a start with Scribe and assigning budgets, something else that is worth setting up right away is your regular supplier list. If you get these added in, with addresses, VAT numbers etc then you’ll be picking up your VAT spend every time you key a transaction into Scribe and select a supplier. Scribe will be whirring away behind the scenes to keep that Form 126 up to date and ready to go just as soon as you give it a date range to work with. There’s no data for you to extract and no copying and pasting. Of course for the VAT registered councils amongst you Scribe will also take care of the VAT 100- same principle- select the quarter you want to claim for or give it a specific date range and Scribe will produce the appropriate Format for HMRC. Once you get into Making Tax Digital Territory you can simply let us know and you’ll be able to use our HMRC integration at no extra cost. I’m sure I speak for both Hannah and Jane when I say we’ll be on hand to help you with all of this too. So if you’re not sure what you should be doing or how to do it- we’ll be happy to show you and get you up and running. It’s an isolating role at times so I think actually aside from these forms and dates etc it’s about having someone you can run something by or get a bit of support from and that’s where we come in.