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HMRC internal manual

Business Income Manual

Value Added Tax: inclusive basis

On occasions you may receive accounts for a VAT-registered trader drawn up on a VAT inclusive basis. What this means is that the VAT chargeable on the trader’s taxable sales will be included in the sales figure in the trading account. Purchases and other expenses in the trading and profit and loss account will also be shown inclusive of VAT. These accounts will not be in accordance with generally accepted accounting practice. However, provided the net sum due to or receivable from HMRC is also included in the profit and loss account as a corresponding debit or credit, then the right result is achieved (that is the same result as VAT exclusive accounting).