Incorporation fee - VAT problem

Thanks Styart for getting back to me. I think what they are suggesting is:

Original invoice £100 + £15 VAT = Total £115
Entered into FA as just that
Credit note of the above
New invoice £115 + £0 VAT = Total £115
Therefore the VAT element wouldn't go into FA

"We have to charge VAT on the incorporation fee - but as a business you can't reclaim it. The HMRC view is that the expense is not necessary for you to run your business - as it's not an allowable expense therefore, you also can not claim the VAT." said our accountant.

This is fine in theory, but I can't figure out how to do in in FA. I can create a credit note to cancel out the original invoice fine, but how do reinput it all so everything tallys?

1. Leave it with me till this evening and I'll have a look at it.
2. This is me being pedantic - why has the invoice increased from £100 to £115?

The gross was always £115 - made up of £100 + £15VAT. They say they have to include the VAT on the invoice but we can't claim the VAT back.

"We have to charge VAT on the incorporation fee - but as a business you can't reclaim it. The HMRC view is that the expense is not necessary for you to run your business - as it's not an allowable expense therefore, you also can not claim the VAT." said our accountant.

What I need to know is how to add it to FA without it taking notice of the VAT?

I would just add it using 0% VAT from the drop down menu.

Okay so I've created a credit note for the original invoice and reissued the invoice with 0% VAT. How do I mark it as paid with the credit note so that our bank balance is unaffected?

Thanks Emily - I'll leave it up to you now.

@Stuart, thanks for your help.

@Emily. I can't figure out to pay off both the reissued invoice and credit note and get the bank balance to show the correct figure?

@ Emily

or if I do get the bank balance to show the correct figure then credit note has not been cleared but shows the amount due has doubled???

thanks for the help.

I needed a five minute break from the tax problem I' was working on and thought I would check if the VAT was deductible or not as I've always thought it was. HMRC have confirmed it is. I'm not certain if the £100 was a notional amount or the actual amount.

If you do want the VAT back need a document to prove it is reclaimable let me know and I'll send you a copy

@stuart

Now I've got two accountants telling me that HMRC as saying too different things. Confused?

Can I just check that they said that the fee for incorporating a ltd company is deductable?

@Emily

I was going to talk to Clare after I confirmed what HMRC said to Stuart.