Under VAT cash accounting, VAT is based on the date an invoice is paid and not on the date of the invoice. This can make your record keeping easier. However, if you use a proper bookkeeping package such as VT Transaction+ it probably makes it a little more difficult. Depending on your business, VAT cash accounting may delay (or accelerate) the amount of VAT you have to pay to HMRC. If all your supplies and purchases have VAT on them at the standard rate then the amount of the delay will be the excess of the amount your customers owe you over the amount you owe your suppliers, times the standard VAT rate. If you are already using VT Transaction+ to operate VAT cash accounting and your accounting is complete and correct, the amount of the delay is more precisely given by the balance on the Creditors: VAT - Deferred output account less the balance on the Creditors: VAT - Deferred input account.
If you are operating the VAT cash accounting scheme, tick the VAT cash accounting box in the VAT dialog (Set Up menu).
When VAT cash accounting is turned on, the VAT on an invoice is initially automatically entered to the relevant deferred VAT account. When the invoice is paid the VAT is then automatically transferred to the normal VAT account (which in turn forms the basis for the VAT return). If an invoice is part paid, only a proportion is transferred.
Payment of invoices
VT Transaction+ only knows that an invoice is paid when it is matched off against a payment. The payment of invoices already entered using the SIN and PIN buttons should therefore be made by selecting the invoices in the customer or suppliers account window and clicking on the special PAY, CHQ or REC buttons that appear on the toolbar just above the invoices.
If the payment of an invoice has already been entered by clicking on a payment button on the main toolbar instead, the invoice and payment must be manually matched off in the customer or suppliers account in order for the VAT return to be correct. This is done by selecting the invoice and the payment entry and clicking on the Contra button (¢) on the toolbar just above the entries. If the invoice is part paid, click on the Allocate button (§). Assuming that the invoice involved has deferred VAT on it, this matching off will automatically generate a Deferred VAT Transfer (DVT) transaction. These can be confusing, so it is best to avoid this way of doing things.
Payments on account should be entered by clicking on the black PAY, CHQ or REC buttons at the bottom of the customer or suppliers account window. The payment on account dialog has a box for entering the provisional amount of VAT (provided VAT cash accounting is turned on).
If you switch to or from the VAT cash accounting scheme, you should not tick or untick the cash accounting box in the VAT dialog (Set Up menu) until you have completed the last return under the old scheme. This is because changing this tick box automatically changes the VAT status of all wholly unpaid invoices already entered.
If you switch to or from the VAT cash accounting scheme, you should check when you next create a VAT return that all invoice that were part paid at the date of the switch are correctly accounted for.
Unticking the cash accounting box has the following effects:
1.All unpaid invoices (i.e. invoices that have not been matched to payments) should have their VAT transferred from the deferred VAT to the normal VAT accounts. This is correct because, under accruals accounting, their VAT should clearly be declared/recovered immediately, even though they have not yet been paid.
2.All invoices that have been matched to payments will not affect the VAT accounts in the next VAT period. This is correct because they have already gone through the previous VAT return.
Deferred VAT accounts
The entries into and out of the deferred VAT output and input accounts are automatically matched off against each other and you should not normally make any of your own entries to these accounts. The balance on these accounts at any point in time should equal the aggregate VAT on the invoices outstanding in the Customer and Suppliers ledgers. There is a special dialog that analyses the entries in these accounts by customer or supplier and compares the sum to the balance in the customer or suppliers ledger. To display this dialog, click on the Display by customer/supplier button at the bottom of the deferred VAT account window.