VAT Qualifying Vehicle with Negative Outstanding Finance

To explain we will use the following scenario:

A VAT Qualifying vehicle was purchased for £17,500 + VAT £3,500 (£21,000).

The amount of outstanding finance on the vehicle was £22,250. That’s £1,250 more that the vehicle was bought for.

In this scenario the supplier of the vehicle must hand over the vehicle and also pay the difference of £1,250.

This is how the above purchase would post to Sage.

1. A purchase invoice with the net purchase value and VAT is posted against the supplier of the vehicle.
2. A purchase invoice for the value of the outstanding settlement amount is posted against the Finance Company, there is no VAT on this figure.
3. A purchase credit for the value of the outstanding settlement amount is posted against the supplier of the vehicle, there is no VAT on this figure.

The supplier of the vehicle will show a balance of -1,250.00.
The finance company will show a balance of 22,250.00.

In Sage record the payment made to the finance company, and record the payment received from the supplier of the vehicle.