Proforma Invoices
Discussion
I'm confused by these.
I've received a proforma. The total is inclusive of VAT, yet it's not a VAT invoice.
So I now pay the full amount, declare it as non-VAT in my accounts and wait for the real invoice to arrive.
What do I then do with regard to tracking VAT in my accounts?
Can't I treat the pro-forma like a real invoice?
I've received a proforma. The total is inclusive of VAT, yet it's not a VAT invoice.
So I now pay the full amount, declare it as non-VAT in my accounts and wait for the real invoice to arrive.
What do I then do with regard to tracking VAT in my accounts?
Can't I treat the pro-forma like a real invoice?
I regard them as a way that a company can pay in advance if it needs a 'quote' to allow the adminstrative wheels to churn ot a cheque. The system needs a bit of paper with a number on it, but you can't send an invoice as you haven't sent the goods. Hence 'pro-forma'.
You pay on the pro-forma, they the do/supply whatever it is, then you get the proper invoice. Then throw the pro-forma away.
At least, that's my take on it.
You pay on the pro-forma, they the do/supply whatever it is, then you get the proper invoice. Then throw the pro-forma away.
At least, that's my take on it.
rsvmilly said:
And unless you run a self-billing VAT system, you can't pay VAT on this 'proforma application'
I think the best way to think of the payment against a proforma invoice is as a 100% deposit. You then do the correct VAT book keeping when the proper VAT invoice arrives. If you are paying in advance (a risk in itself, but that's a different story) you then match the 100% deposit against the VAT invoice. If you intend to reclaim the VAT on the purchase it is absolutely essential you obtain the proper VAT invoice.
>> Edited by steveb* on Wednesday 13th October 18:14
steveb* said:
And unless you run a self-billing VAT system, you can't pay VAT on this 'proforma application'
I think the best way to think of the payment against a proforma invoice is as a 100% deposit. You then do the correct VAT book keeping when the proper VAT invoice arrives. If you are paying in advance (a risk in itself, but that's a different story) you then match the 100% deposit against the VAT invoice. If you intend to reclaim the VAT on the purchase it is absolutely essential you obtain the proper VAT invoice.
>> Edited by steveb* on Wednesday 13th October 18:14
PetrolTed said:
Ok, understand that, thanks. Now I need it in Quickbooks language 
I raise a cheque without VAT accounted for.
I receive the full invoice in due course.
What do I do then to get my accounts straight?
Not familiar with quickbooks. In Sage, for example, you process the cheque as a payment on account, then process the VAT invoice in the usual way, then go in & allocate the payment to the invoice.
Davel said:
Surely treat it as a vat invoice and then, when the real one arrives, simply replace the pro-forma with the real one.
That way you only pay once and recover the vat once.
I think......
Dangerous...depending on how many pro formas you have...if you do this a supplier will forget to supply a real invoice, or you'll forget to do the swap..until 9 months later when you get the VAT visit...then it'll end up costing you.
Pro-forma invoices are a real pain. The traditional sequence of events was for a real invoice to be issued followed by a payment. VAT followed this normal procedure. As a result, computer systems are geared towards this traditional treatment. Issuing pro -forma invoices is, in effect, a VAT dodge by the issuer of the invoice. Instead of raising a VAT Sales invoice, declaring the VAT and then waiting for their customer to pay, many companies now issue a pro-forma Sales invoice and delay issuing a real Sales invoice until they receive the cash from their customer, thereby improving their cash flow. The problem is that the customer has to wait for the "real" invoice to turn up before they can claim back the VAT. This prblem is further compunded in that you can't really enter pro-forma invoices onto you computerised book-keeping system, otherwise the computer will process the VAT amount and try and claim it back.
All of the above is totally irrelevant, of course, if you use the VAT "Cash Accounting" system.
I would try and persuade as many suppliers as possible from issuing these pro-forma invoices as much as I could.
All of the above is totally irrelevant, of course, if you use the VAT "Cash Accounting" system.
I would try and persuade as many suppliers as possible from issuing these pro-forma invoices as much as I could.
That's fine Eric but as one of those suppliers I raise pro formas to avoid having to pay VAT on invoices long before the customer can be bothered to pay. This was recommended by a VAT inspector as he didn't like me raising credit notes and re-invoicing when the money was actually received. I hate VAT! And customers that don't pay on time! And...
Yes, the issuing of pro-forma invoices is totally legal from a VAT point of view. However, it plays havoc with proper "double entry" book-keeping systems in that sales can't really be booked into the records as they are not genuine until the proper genuine sale invoice is issued. From the customer's point of view, the booking of purchases and costs onto their book-keeping system is also delayed until the genuine invoice arrives. That in turn, could play havoc with their creditors ledger system as they may have outstanding invoices which have not yet been entered but which are due and payable.
In my opinion, pro-formas were looked on favourably by the VAT authorities because, once upon a time, there were extreme restrictions on claiming back Output VAT on sales invoices which were unpaid. In fact, you could not get the VAT back unless your customer had gone into liquidation or gone bankrupt. These restrictions have been abolished now. You can get bad debt relief within two VAT quearters of issuing the bill or alternatively, you can operate the "Cash Accounting" system (which I also hate as it flies in the face of proper accounting practice)which removes completely the problem of paying over VAT on sales invoices issued to slow payers or which have become bad debts.
In my opinion, pro-formas were looked on favourably by the VAT authorities because, once upon a time, there were extreme restrictions on claiming back Output VAT on sales invoices which were unpaid. In fact, you could not get the VAT back unless your customer had gone into liquidation or gone bankrupt. These restrictions have been abolished now. You can get bad debt relief within two VAT quearters of issuing the bill or alternatively, you can operate the "Cash Accounting" system (which I also hate as it flies in the face of proper accounting practice)which removes completely the problem of paying over VAT on sales invoices issued to slow payers or which have become bad debts.
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