VAT Return - how do I classify "Bank Interest from my business bank account" - as a Zero VAT Output?


Postby learningcurve on Sat Jan 07, 2006 10:08 pm

On a VAT return, how do I account for Bank Interest - both paid to me by the bank, or sometimes taken from me if I am overdrawn.

Do I add bank interest as an output for box 6, and therefore do I enter that as 0% VAT item, or do I enter it instead as a Non-VAT Item (like with wages but as an output)?

Also, what do I do with interest I have paid when I was overdrawn. It's not a purchase really, but does it still need to be intered into box 7? Do I add it at 0% VAT or as a Non VAT Item?

Thanks for any contributions to this
learningcurve
 
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Postby deanshepherd on Sun Jan 08, 2006 2:39 am

Bank interest received is not an output and does not need to go on the VAT return at all.

Bank interest paid is exempt from VAT and therefore also not required to be included in the return.


Dean Shepherd
dean.shepherd@mmi-online.co.uk
MMI Accountancy
www.mmi-online.co.uk
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Postby learningcurve on Sun Jan 08, 2006 2:52 am

Hi Dean,

Thanks for the advice.

So Bank interest paid does not get added up into box 7 then? I guess not if it exempt.

I have a barclays plus additions account, which is technically a personal account, but I use it for business. One feature of the account is that if I pay £13 a month, I get their Additions Plus package wwhich gives me free worldwide travel insurance, free will writing, free legal/tax advice and an interest free overdraft.

Can I claim this as a business expense for VAT purposes? However, if I then make a travel insurance claim, will I have to pay 17.5% on what I get as settlement etc.

Or should I leave it off the tax return altogether?

Apparently they pay back 10 months worth of the Additions Plus payments I have made to them as a cashback. What do I do with that cheque? And does that complicate the VAT issue?

This is an interesting one I guess.
learningcurve
 
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Postby deanshepherd on Sun Jan 08, 2006 2:59 am

As I said, bank interest paid does not require inclusion on the return.

I would suggest not claiming the VAT on the bank charges. As you will be getting 10/12ths of it back anyway then we are only talking pennies.


Dean Shepherd
dean.shepherd@mmi-online.co.uk
MMI Accountancy
www.mmi-online.co.uk
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Postby learningcurve on Sun Jan 08, 2006 3:07 am

thanks Dean.

After 2 months and many sleepless nights of trying to get my head around the VAT system, I think I more or less understand it now.

I have been using a good bit of software called Apexico VAT Books and it is very useful for record keeping - sole trader.

THanks
learningcurve
 
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Postby paultaylor@vatease.c on Sun Jan 08, 2006 3:31 am

HMRC give a complete guide to what should and shouldn't be included on a VAT return in Box 6 and 7 in the Public Notice 700/12. This is available on their website as follows:

http://customs.hmrc.gov.uk/channelsPortalWebApp/channelsPortalWebApp.portal?_nfpb=true&_pageLabel=pageLibrary_PublicNoticesAndInfoSheets&propertyType=document&columns=1&id=HMCE_CL_000070#P252_15489

The list specifically includes exempt supplies as items that should be included in Box 6 of the return. The only issue is whether it is income from a "business activity". In practice most businesses omit bank interest from VAT returns. However, other exempt income should be included.

It is likely that you are not being charged VAT on the £13 per month (depending upon the precise nature of the services supplied). However, if you are and you are using the extra services for the purpose of your business then you can claim the VAT. Your bank should issue a credit note for the cash back. If they don't or they do but it doesn't include VAT then there is no need to repay the VAT claimed.

Hope that helps.

Regards

Paul Taylor
http://www.vatease.co.uk/
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