Quick VAT and Accounting Question

heffa_lump

I am a business owner of a LTD company. We had a client where we charged £1000 + £200 VAT. However, the contract was later cancelled without any work done, and so we refunded the full amount + VAT. Was I meant to add that £200 to my VAT return to HMRC, even though we refunded the client? This was all done within the same month if that is relevant.

Also in terms of annual accounts, do I need to both list the payment in as income, and the payment refund as an expense? If so is that expensed as a special category or does it cancel itself out and not need to be included?

00ec25

so you raised, and the client paid, a sales inv for £1,200 gross
therefore yes, of course the refund is £1,200 incl vat and yes you account for the refund on your Vat return as the respective box 1 and box 6 values

your ledger will show £0: £1,000 income and £1,000 refund, £200 output tax and £-200 output tax. They may of course be in different VAT periods.