Cash Mode for VAT accounting
C-Law currently has routines designed to assist with the recording of bills and VAT for those who are accounting for VAT on a cash basis.
It appears highly attractive only to have to account for VAT after you have received payment of your bill. However this accounting method involves a lot more book keeping and creates more opportunity for errors. In practice once the average high street solicitors firm is up and running the quarterly bills for VAT will be found to be much the same whether on bills delivered or cash mode. It is therefore usually only specialist firms (eg: where large value bills are generated that are often not paid for some time) or firms who have a lot of bad debts who will wish to consider paying VAT on a cash basis.
It is true that there is a short lived 'VAT holiday' when converting from bills delivered to cash mode but this is only a holiday for one quarter and there is a need to balance the advantage of this transitory gain against the disadvantage of the long term extra book keeping generated and a possible liability to the VAT authorities for errors.
Achieving cash mode
If you pay VAT on a cash basis you should not record bills
with a B1 entry and VAT with a V1 entry. If you did this you would
end up paying VAT on a bills delivered basis. Some firms therefore
achieve cash mode by keeping back the entering up of bills onto the
computer until the bill has been paid and then using C-Law with the
normal B1 and V1 entries.
This may be satisfactory for a firm where there are a limited number of bills outstanding at any time and where fee earners know what they are doing and the firm has an efficient and knowledgeable book keeper, but it has the disadvantage that the computer ledger does not properly show the true state of affairs and could lead to VAT outputs being overlooked and not returned to the tax man.
C-Law attempts to help users who wish to pay VAT on a cash mode to record bills entered and still due and keep track of bill payments and record the VAT and send it to the VAT report when paid. However the book keeping involves extra complications. The onus must be on the fee earner to always tell a book keeper when bills have been paid (and book keepers to keep an eye on this in conjunction with fee earners) as this information often involves a knowledge of the file and a book keeper cannot be expected to know by instinct - except of course when it is obvious.
To enable entries to be made on ledgers C-Law can be set up for Cash Mode on the VAT settings screen in the Settings in the Cashier Menu. Once this mode has been set up C-Law has two more cash sheets. These are designated B8 and V8.
B8 is a bills "holding sheet" and V8 is a VAT "holding sheet". The idea of these sheets is that bills due and VAT due but not yet paid are entered onto the ledger by the use of these sheets which are there to take the double entry. When the bill is paid you are prompted to enter up a special transfer which makes cancelling entries on B8 and V8 sheets and puts the 'normal' entries onto the B1 and V1 sheets.
You will therefore normally enter up costs and VAT on the office column of the client ledger by reference to these B8 and V8 sheets and NOT the B1 or V1 sheets. (The exception is when the bill is paid straightaway when there is no point in using the intermediate holding sheets and the 'normal' B1 and V1 entries can be made).
When on Cash mode the ledger entry sheets will have an extra field "Costs and VAT due" with a value present once you have entered up costs and VAT on B8 and V8. This warns you that you need to clear this by recording the receipt of money to pay the bill internally. Unless you do this you will have received money which is due to the taxman and be in breach of your obligations. So you MUST ensure that you do this.
C-Law contains checks to warn you and to prompt you to make the necessary internal entries. However the permutations of possible entries are huge and C-Law may not always prompt and you must be vigilant as a cashier at all times to ensure that money received for costs and VAT is properly recorded and that the VAT appears on the V1 VAT sheet.
Some of the prompts and warnings
C-Law software will warn you if you try to use B1 when you do not have a credit balance in office column. However if your credit in office column exceeds the amount of the bill and VAT it may in fact be easiest to use B1 and V1 as there is no point whatsoever in sending the bill and VAT to holding sheets and then promptly removing them and recording the bill as paid! So you can override the warning.
The software will also warn you if you try to use B8 when you have a credit on office column as you may prefer then to use B1 and V1 so the bill goes through as normally - but only if the credit equals or exceeds the bill and VAT. If it doesn't you need to use B8 and V8. So again you can override the warning.
When the office column is credited with any amount and there are costs and VAT shown as outstanding, C-Law will normally try to prompt you as to whether this can be recorded as payment in whole or part of the costs and VAT and you will be directed to a special Cash Mode Transfer screen for recording payments of costs and VAT. (This only appears when you say you do not wish to make any more entries on the ledger). Or you can call up this screen yourself at any time from the ledger entry screen.
An example of the screen you will see to record payment of bills is shown above. In this instance it is showing that the bill has been paid in full along with the VAT. Click OK and internal entries will be made to remove the costs and VAT from the holding sheets and send them to the normal costs and VAT sheets.
If the bill was only partially paid by the receipt on office column the entries prompted would to be record only partial payment. An example of this is shown below:
As you will see the total due in costs and VAT is 117.50 but the office column has only a credit balance available sufficient to pay a part of this. The internal entries needed are calculated for you and the costs and VAT possible to record as paid are shown for you to check and confirm.
If you click OK the internal entries are prepared and if you then accept the account when you next go into the ledger sheet the balance of costs and VAT remaining due will be shown in the special cash mode field.
The actual costs and VAT shown as due is also shown on the client ledger summary for you to check.
In cash mode you will find that you have an additional shortlist option on the main screen which you can activate if you wish to see the accounts on which you have costs and VAT recorded as outstanding. If you set up the screen listing to show balances it will give you highly useful information and enable you to keep an eye on the status of your ledgers and help you to spot any that you might have failed to record the payment of costs and VAT on. It is highly recommended that you do this regularly.
You must be vigilant at all times as unlike the normal bills delivered mode where you cannot easily go wrong, in Cash mode YOU have to tell the system that the costs have been paid and that the VAT is due. If you don't you will be in breach and you may end up suddenly having a big VAT bill to pay if you have a lot of back payments to put through. C-Law tries to help you with warnings and prompts but cannot accept any responsibility for this.
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