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Pre-VAT registration purchases

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The following information is for general guidance only and should not be taken as definitive VAT advice, since individual circumstances may vary. To determine the VAT treatment for your particular transactions please refer to HMRC guidance or seek tax advice from an accountant.

The rules on reclaiming VAT on purchases made before registering for VAT are outlined at https://www.gov.uk/vat-registration/purchases-made-before-registration. If you are permitted under HMRC rules to reclaim VAT on pre-registration purchases, they can be brought into your first VAT return as explained below:

To reclaim VAT on purchases made in your current financial year

Transactions entered before the VAT registration setting is switched on (Set Up>VAT) will have a VAT status of being outside the scope of VAT and therefore will not automatically be included when you run your first VAT return.

If you wish to include VAT on purchases entered before registration on your first VAT return (and are permitted to do so under HMRC rules), you can do so by the following methods:

Method 1: Adjust the original transaction to include VAT

To change the status of a purchase to be within the scope of VAT and to adjust the entry to include VAT:

1.Right-click on the purchase transaction in any report and select Edit Transaction.

2.In the Edit transaction window, select the Entries tab, then select the Expense/Cost of Sales entry in the Entry to be changed: box, and tick Within the Scope of VAT:

edittrans

Editing a transaction to change the VAT status to Within the scope of VAT

3.This creates an entry for VAT - Input, for which you can enter the VAT amount reclaimable in the VAT (£) box:

VAT entries

VATentry2

Editing a transaction to enter the VAT input amount

4.You also need to change the Expense/Cost of Sales amount from the gross amount to the amount net of the VAT entered in step 3:

Edit trans 3

If you can only reclaim part of the VAT, e.g. a stock purchase where you can only reclaim VAT on the amount of stock left, you can also use the method described above, making sure you enter only the amount of VAT you are permitted to reclaim in step 3.

Method 2: Enter a journal to account for the VAT reclaimable

Alternatively, you can use the JRN function to enter a journal with the following data:

Debit

Credit

Ledger

Analysis account

Net

VAT amt reclaimable

this figure will be included in box 4 of the VAT return


Creditors

 

VAT - Input

Net amt (enter as a positive figure)

this figure will be included in box 7 of the VAT return


VAT amt reclaimable

The same ledger used for the original purchase transaction                                                                                      

The same analysis account used for the original purchase transaction

 

 

 

You should also make reference to the original purchase transaction number or the supplier's invoice number in the Entry details field.

For example, to reclaim VAT of £100.00 on a purchase made for £600.00 gross of VAT:

Reclaim input VAT

If you can only reclaim part of the VAT, e.g. a stock purchase where you can only reclaim VAT on the amount of stock left, you can also use this method, making sure you enter only the amount of VAT you are permitted to reclaim in the debit and credit columns.

Completing your VAT return

When the VAT return is run, the appropriate boxes will then include the input VAT and net purchase amounts (even if the transaction is dated before the current VAT return period), e.g. using the figures from the example above:

VAT return element

Included in VAT return

Amounts included £

Input VAT reclaimable

Box 4

100.00

Net value of purchase

Box 7

500.00

To reclaim VAT on purchases made in a previous financial year

If this is not your first financial year of trading and you wish to reclaim VAT on purchases made in prior years, caution should be exercised when adjusting amounts from prior years. This is because your accounts for those years will have been finalised and a prior-period adjustment may be required. This type of transaction is normally handled by your accountant, so it is best to seek advice from them before entering this. If a prior-year adjustment is required, this can be entered by a journal using the JRN function.  

If a prior-period adjustment is not required, you can account for the VAT by entering a journal in the same way as described in Method 2: Enter a journal to account for the VAT reclaimable above, making sure the journal is dated within your current financial year so that it does not alter prior year balances.

Checking if accounts are within VAT scope

Any transactions entered after the VAT registration setting is switched on will automatically have a VAT status of being within the scope of VAT, so long as the Analysis account selected for the transaction is one with a VAT status of being within VAT scope. Most analysis accounts have this status by default. You can check the VAT status of all accounts by selecting Set Up>Accounts>All:

Scope