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chrisotherwise
Level 1

Handling VAT and accounting on a hire purchase E-Bike

My business has purchased an E-Bike for £2,800. This has been funded by a £300 deposit and a £2,500 finance loan which we will pay back over three years. I have two questions:

 

1. How do I manage this in Quickbooks? I guess the deposit will appear as an expense to the bike company - but what about the loan - which appears in my bank as a monthly expense of £75? Can somebody point me to some docs about how I set this up?

 

2. I'm on the VAT flat rate scheme, but as the cost of the bike is over £2,000 I should be able to claim back the VAT paid. How do I account for this in Quickbooks given that I don't actually have a single transaction for £2,800 logged anywhere?

 

Many thanks for your help.

Solved
Best answer January 28, 2021

Accepted Solutions
John C
QuickBooks Team

Handling VAT and accounting on a hire purchase E-Bike

Hi chrisotherwise If the 2800 is  inclusive of VAT then you would follow the steps below. We must inform you that we're not accountants and so any information that we give should be qualified by a professional.

Set up a Tangible asset account from within the chart of accounts.and give it a recognisable name e.g E-bike Asset: Select accounting > chart of accounts > new > in the account type field select tangible assets > in the detail type field select other tangible assets > in the name field enter a name > save and close.

Set up a Current Liabilities account: Select accounting > chart of accounts > new > if the amount is to be paid back within 12 months then in the account type select current liabilities > in the detail type select current liabilities, if the amount is to be paid back over a 12 month period then you would select non current liabilities in the account type and other non current liabilities in the detail type field > enter a name in the name field > save and close.

Create a journal: Select New+ > journal entry > on line 1 in the account column enter the asset account you created above > in the debits column enter 2800 > on line two in the account column enter the liability account you created above and in the credit column enter 2800 > save and close.

Create the expense for the 300 deposit: Select New+ > Expense > In the payee field enter/create the name of the supplier you purchased the bike from > in the payment account enter the bank account that the deposit was paid from > in the payment date field enter the date this was debited from you bank account > in the category column enter the liability account that you created above > in the amount column enter 300 in the amounts are field enter inclusive of VAT > tick the VAT reclaimable box > in the VAT column select the 20%S VAT code > save and close.

Create a Bill for the remaining amount that you owe to your finance company: Select New+ > Bill > In the supplier field select/create the finance company >in the category column enter the liability account that you created above > in the amount column enter 2500 > in the amounts are field select inclusive of VAT > tick the VAT reclaimable box > in the VAT column enter the 20%S VAT code > enter any other relevant information > save > when you're ready to account for the first payment to the finance company select make payment on the bill > enter the correct date that the payment was debited from your bank account > in the amount field on the right hand side, not the payment field, enter 75.00 > save and close

View solution in original post

John C
QuickBooks Team

Handling VAT and accounting on a hire purchase E-Bike

Hi chrisotherwise Thanks for the feedback.

When you use the FRS system you're not able to claim VAT back on expenses unless they're relating to a purchase of an asset over 2000 GBP. So the FRS gain and loss is calculated correctly any expenses that aren't relating to asset purchases over 2000 GBP should be categorised as 20%S. If they are related to the purchase of an asset over 2000 GBP then they would have to be created manually to enable you to select the reclaimable box, you will then be able to match the transaction within the banking section.

If you're using the cash accounting method for your VAT then yes you'll be reclaiming the VAT in increments when you make payments on the bill.

View solution in original post

3 REPLIES 3
John C
QuickBooks Team

Handling VAT and accounting on a hire purchase E-Bike

Hi chrisotherwise If the 2800 is  inclusive of VAT then you would follow the steps below. We must inform you that we're not accountants and so any information that we give should be qualified by a professional.

Set up a Tangible asset account from within the chart of accounts.and give it a recognisable name e.g E-bike Asset: Select accounting > chart of accounts > new > in the account type field select tangible assets > in the detail type field select other tangible assets > in the name field enter a name > save and close.

Set up a Current Liabilities account: Select accounting > chart of accounts > new > if the amount is to be paid back within 12 months then in the account type select current liabilities > in the detail type select current liabilities, if the amount is to be paid back over a 12 month period then you would select non current liabilities in the account type and other non current liabilities in the detail type field > enter a name in the name field > save and close.

Create a journal: Select New+ > journal entry > on line 1 in the account column enter the asset account you created above > in the debits column enter 2800 > on line two in the account column enter the liability account you created above and in the credit column enter 2800 > save and close.

Create the expense for the 300 deposit: Select New+ > Expense > In the payee field enter/create the name of the supplier you purchased the bike from > in the payment account enter the bank account that the deposit was paid from > in the payment date field enter the date this was debited from you bank account > in the category column enter the liability account that you created above > in the amount column enter 300 in the amounts are field enter inclusive of VAT > tick the VAT reclaimable box > in the VAT column select the 20%S VAT code > save and close.

Create a Bill for the remaining amount that you owe to your finance company: Select New+ > Bill > In the supplier field select/create the finance company >in the category column enter the liability account that you created above > in the amount column enter 2500 > in the amounts are field select inclusive of VAT > tick the VAT reclaimable box > in the VAT column enter the 20%S VAT code > enter any other relevant information > save > when you're ready to account for the first payment to the finance company select make payment on the bill > enter the correct date that the payment was debited from your bank account > in the amount field on the right hand side, not the payment field, enter 75.00 > save and close

View solution in original post

chrisotherwise
Level 1

Handling VAT and accounting on a hire purchase E-Bike

So a quick follow up on this. Thanks to John's very clear instructions I was able to create everything as directed and all looks good for my E-Bike loan account. I do however have a couple of further questions:

 

1. I normally create expenses by downloading my banking and adding them from that screen. But expenses created that way don't have a "VAT Reclaimable" tickbox. Do I have to create each such expense manually first - or is there a magic way of adding VAT reclaimable later on?

 

2. It looks like I will reclaim the VAT in little chunks on each month's £75 payment rather than as a one-off reclaim on the £2,800 invoice. Is that correct? So I won't reclaim the entire VAT amount until the entire loan is repaid? Not a big problem, just want to ensure that I'm doing it right.

 

Once again, thanks for the help, I continue to be impressed with the speed and quality of support I get from Quickbooks both in this forum and directly online.

John C
QuickBooks Team

Handling VAT and accounting on a hire purchase E-Bike

Hi chrisotherwise Thanks for the feedback.

When you use the FRS system you're not able to claim VAT back on expenses unless they're relating to a purchase of an asset over 2000 GBP. So the FRS gain and loss is calculated correctly any expenses that aren't relating to asset purchases over 2000 GBP should be categorised as 20%S. If they are related to the purchase of an asset over 2000 GBP then they would have to be created manually to enable you to select the reclaimable box, you will then be able to match the transaction within the banking section.

If you're using the cash accounting method for your VAT then yes you'll be reclaiming the VAT in increments when you make payments on the bill.

View solution in original post