Final answer:
To find the credit balance on the VAT control account at the end of the year, the output VAT from takings (£4,475) is reduced by the input VAT from supplier payments (£3,108), payments to HMRC (£1,164), and the starting balance owed to HMRC (£349), resulting in a debit balance of £146.
Step-by-step explanation:
To calculate the credit balance on the VAT control account at the year-end, we need to consider both the input and output VAT from the transactions. Since all receipts and expenditures are subject to VAT and the amounts given are inclusive of VAT, we should first calculate the VAT element included in these figures.
For the business takings of £26,850, assuming a VAT rate of 20%, the VAT content can be calculated as £26,850 / (1 + 0.20) * 0.20 = £4,475. The output VAT which must be paid to HMRC is this amount.
The payments to suppliers are £18,648, including VAT, so the input VAT which can be reclaimed from HMRC is calculated as £18,648 / (1 + 0.20) * 0.20 = £3,108.
At the beginning of the year, HMRC was owed £349, and during the year, payments of £1,164 were made to HMRC. The credit balance on the VAT control account at the end of the year is the output VAT minus input VAT and payments already made to HMRC including the starting balance.
So, the calculation would be as follows:
Credit Balance = Output VAT - Input VAT - Payments to HMRC - HMRC Starting Balance = £4,475 - £3,108 - £1,164 - £349 = -£146 (rounded to the nearest £).
Therefore, the VAT control account would have a debit balance of £146 at the end of the year, indicating an amount owed to HMRC.