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VT Transaction+

Navigation: Value Added Tax

VAT cash accounting

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Introduction

Under VAT cash accounting scheme, 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). You do not need to apply to HMRC to use the scheme or to tell them that you are leaving the scheme.

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).

Switching schemes

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 invoices 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) will 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.

 

Accounting for transactions excluded from the cash accounting scheme

HMRC forbids the use of the cash accounting scheme for certain transactions, listed in VAT manual VCAS2200.

Transactions excluded from the scheme should be entered under the standard accounting method for VAT, i.e. at the date of invoice rather than payment (if different). To do this while maintaining cash accounting for your other transactions, leave the VAT cash accounting setting ticked (Set Up>VAT) and perform the following workaround for the excluded transactions:

1.Enter the excluded transaction as 'outside the scope of VAT'

Although this type of transaction is not actually outside the scope of VAT, this serves the purpose of preventing the transaction from being picked up in the VAT return under cash accounting. Instead, it is accounted for in the VAT return under standard accounting by the journal in step 2 below.

Select the relevant to transaction (e.g SIN, REC, PIN or PAY), enter the following amounts:

Total

VAT

Net

Gross amt (or net amt if zero rated)

Blank or 0.00

Gross amt (or net amt if zero rated)

In the analysis of net amount section, enter the following:

Amount

Analysis Ledger

Analysis Account

Gross amt (or net amt if zero rated)

Blank or 0.00

Select an analysis account that is outside the scope of VAT

Notes:

To set an analysis account as the outside scope of VAT, select Set Up>Accounts>All...[Select Account]>Properties and untick Entries to this account are normally within the scope of VAT

If you are using the SIN function to raise sales invoices,you need to set up a product or service with the VAT rate selected as 'Outside scope' (Set Up>Products and Services>New). The amount in the Price (£) field should be the gross amount (or net amt if zero rated).

Although the entry above will record the gross amount to the analysis account, the journal in step 2 below will correct this so that only the net amount is reflected in the analysis account.

2.Manually record the VAT entries

Use the JRN function to enter a journal for the following VAT entries with the same date as the transaction in step 1.

You should also make reference to the transaction reference from step 1. (which can be entered in the Entry details field) so that you can identify the journal entry as being related to the transaction in step 1.

VAT entries for a sale:

Debit

Credit

Ledger

Analysis account

Net

VAT amt (or 0.00 if zero-rated)


The same ledger used for the related transaction in step 1.

 

The same analysis account used for the related transaction in step 1.



VAT amt (or 0.00 if zero-rated)

this figure populates Box 1. of the VAT return

Creditors                                                                                      

VAT - Output

Net amt (enter as a minus figure)

this figure populates Box 6. of the VAT return

VAT entries for a purchase:

Debit

Credit

Ledger

Analysis account

Net

VAT amt (or 0.00 if zero-rated)

this figure populates Box 4. of the VAT return


Creditors                                            

VAT - Input

Net amt (enter as a plus figure)

this figure populates Box 7. of the VAT return


VAT amt (or 0.00 if zero-rated)

The same ledger used for the related transaction in step 1.

 

The same analysis account used for the related transaction in step 1.