I have a query that is confusing my small but perfectly formed braincell.

To certain clients we give away complimentary Lounge Access to start their trip.

We of course are charged for this by our provider who presume we are charging our clients for this service, and pay us commission. And they self-bill us for the VAT, but I can't work out how to account for it (fyi we use Kashflow, and have an excellent, but on holiday accountant, so trying to work it out myself).

An example:

The product costs ?7.00
Of that we 'receive' 10% commission (so total that gets deducted from our bank account is ?3.00).
The trouble is that we have to account for the VAT on the commission of ?.70 (which is ?.55).
But we don't 'receive' commission, as we are giving this product away.

So basically we want to account for the ?3 going our of the account, but have to add ?.55 VAT on top, but then it no longer adds up...

Help :(
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How do you normally deal with this when it's paid for and not given away?
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Have a look at this link, it details VAT on discounts, special offers etc:

http://www.hmrc.gov.uk/vat/charge-discounts.htm

Jason
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How do you normally deal with this when it's paid for and not given away?

We don't, it's a new phenomena!
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I'd advise waiting till your accountant gets back from holiday.

BTW, from the look of your KashFlow account, your accountant isn't a Partner.

Feel free to tell us about him (http://www.kashflow.co.uk/referaccountant.asp).
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I'd advise waiting till your accountant gets back from holiday.

BTW, from the look of your KashFlow account, your accountant isn't a Partner.

Feel free to tell us about him (http://www.kashflow.co.uk/referaccountant.asp).

No, but he did recommend Kashflow to us!

Unfortunately the nature of our business means we havn't used Kashflow for posting sales, purely for recording purchases, so it's more of a bit part in our accountancy systems. However, i'm sure it can do more for us than it is at the moment. I thought there was a Kashflow forum - but it seems to have disappeared. Is there somewhere more specific I could post questions and comments about Kashflow as opposed to litter this forum?

Back to matter in hand I do have a nagging feeling there is a simple way to deal this.
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There's a KashFlow forum at http://forums.kashflow.co.uk/

For support issues you should email support @ kashflow.co.uk or us the "Help" tab in KashFlow.

We can't however answer accounting questions like the above!
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Are you invoiced for the product at ?7 + VAT or for the Net after discount for ?3 + VAT
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Are you invoiced for the product at ?7 + VAT or for the Net after discount for ?3 + VAT

Hmm, Invoiced like thus if this is what you mean:

Client Name Park Gross Comm VAT Paid Balance

Mr Cassio Acc LHR 37.00 -3.15 -0.55 0.00 33.30


And ?3.30 is what we pay.
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Are you VAT registered ? If not you just post the total value

From you example looks like the ?7 is inclusive of the VAT.
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Are you VAT registered ? If not you just post the total value

From you example looks like the ?7 is inclusive of the VAT.

Yes, we are VAT registered. The ?7 is inclusive of the VAT which is only paid on the commission we receive (i.e. 17.5% of (10% of ?7) = ?.70 = ?.55.

So normally, we should be selling this item for ?7, pay ?3 to the supplier, ?.55 to the VAT man, and the other ?3.30 would be profit. However, as we are giving this item away free, we do not make a profit, but I presume (?) we have to account and pay for the VAT?
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, but I presume (?) we have to account and pay for the VAT?

Yes you will have to account for the VAT.
Not sure on the treatment of your orginial purchase but you are suggesting that it is zero rated and not standard rate - your accountant will know the actual details of the product.
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