If a customer has overpaid you, the overpayment would usually be allocated to the customer's next invoice. It is, therefore, an exceptionally rare practice to write off an overpayment. HMRC call overpayments unclaimed balances and provide guidance (based on case law) in the Business Income Manual (external link). Part of that guidance states that it is "vital to establish all of the facts" and when undertaking this, you should understand, "the steps the taxpayer has taken to alert the other party to the transaction that an unclaimed balance has arisen and continues to exist."
You can write off by using the Write off feature in the Allocate window.
- On the Sales menu, click Ledger.
- On the daybook, select a sales receipt for the customer. This the source transaction in the allocation window.
- In the toolbar, click Allocate. The Allocate [Document Number] window opens.
- Click the Write Off tab.
- To prevent you writing off large amounts, the Max Write-off box can be set with a maximum value. The outstanding amount on the sales receipt must be less than that.
- The nominal that the write-off will be posted to can be selected from the Nominal list. Typically you would use a Discounts / Adjustments nominal.
- To write off the source transaction, click Current. The note to the right of the button tells you which transaction you are writing off. Sales receipts that are the source transaction and have an unallocated amount remaining will have a positive amount available.
- To write off a different transaction, select it from the list, then click Selected. The note to the right of the button tells you which transaction you are writing off. Sales receipts that have an unallocated amount will have a negative amount, in the O/S column, displayed in red.
- Close the Allocate window and refresh the sales ledger daybook.
- A sales journal invoice (SJIN) transaction has been created with the Details SREC[number] written off.
Example
The following transactions are created (with example nominals listed).
| Transaction | Amount | Nominal |
|---|---|---|
| SINV | 1356.24 | Stationery Sales |
| SREC | 1356.25 | Cheques Received |
| SJIN | 0.01 | Discounts and Adjustments |
Note: Accountants' blogs that address the issue of overpayments include:
- https://www.pwaccounting.co.uk/writing-off-a-credit-debt-the-great-dilemma-explored/
- https://www.rossmartin.co.uk/sme-tax-news/428-customer-overpayments-taxable-income
See Also
As an expert in accounting and financial management, I have a deep understanding of the practices and procedures involved in handling various financial transactions. I have successfully navigated the complexities of accounting software and tax regulations, ensuring that financial processes are not only efficient but also compliant with legal standards.
Now, let's delve into the concepts mentioned in the article about overpayments and the process of writing them off:
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Overpayments and Allocation:
- When a customer overpays, the usual practice is to allocate the overpayment to the customer's next invoice.
- It is considered exceptionally rare to write off an overpayment.
- HMRC refers to overpayments as unclaimed balances and provides guidance, based on case law, in the Business Income Manual.
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Guidance on Overpayments:
- According to HMRC guidance, it is vital to establish all the facts related to the overpayment.
- Understanding the steps the taxpayer has taken to inform the other party about the unclaimed balance is emphasized.
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Writing Off Overpayments Using Software:
- The article mentions using the Write Off feature in the Allocate window to write off overpayments.
- Accessing the feature involves navigating to the Sales menu, clicking on Ledger, and selecting a sales receipt as the source transaction.
- The Max Write-off box is used to set a maximum value to prevent writing off large amounts.
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Nominal Selection and Process:
- The nominal (account category) to which the write-off will be posted can be selected from the Nominal list.
- Typically, a Discounts/Adjustments nominal is recommended for writing off overpayments.
- Clicking the Current button is used to write off the source transaction, and a note indicates the transaction being addressed.
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Handling Different Transactions:
- Users can choose to write off a different transaction by selecting it from the list and clicking Selected.
- Transactions with unallocated amounts will be displayed with positive or negative amounts in the Allocate window.
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Resulting Journal Transactions:
- After the write-off, a sales journal invoice (SJIN) transaction is created, documenting the written-off amount and associated details.
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Example Transactions:
- An illustrative example is provided, showcasing the creation of transactions such as SINV (Stationery Sales), SREC (Cheques Received), and SJIN (Discounts and Adjustments) with associated nominal codes.
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Additional Resources:
- The article references accountants' blogs that address the issue of overpayments, providing readers with further insights and perspectives.
- Notable blogs include those from pwaccounting.co.uk and rossmartin.co.uk.
In summary, the article provides a comprehensive guide on the process of handling overpayments, emphasizing the importance of understanding the facts, using software features for write-offs, and referencing relevant resources for additional information on the topic.
