VAT Return journals

If your business is registered for VAT you will accrue VAT liability as you enter Vatable transactions into Accounting.

For each VAT period you must submit a VAT Return to report the amount of VAT that is payable or reclaimable for that period.

When you record your transactions, any VAT amounts you include will be recorded against the following VAT nominals.

Invoice Based VAT Scheme (Standard or Flat-Rate Invoice Based)

2200	VAT on Sales	Credit
2201	VAT on Purchases	Debit

Cash Based VAT Scheme (Cash Accounting or Flat-Rate Cash)

2200	VAT on Sales	Credit
2201	VAT on Purchases	Debit
2205	VAT on Sales Holding Account	Credit (Unpaid Sales Invoices)
2206	VAT on Purchases Holding Account	Debit (Unpaid Purchase Invoices)

For a Cash Based VAT Scheme, the VAT value of unpaid invoices is recorded in the VAT holding account nominal until they are paid. At this time the VAT value is moved to the standard VAT nominal account for inclusion on the next VAT Return.

TIP: Bank payments and journals which affect the VAT nominals will directly affect these balances at the time of recording the transaction.

▼ The postings made when you complete a VAT Return

The process of generating and completing a VAT Return also automatically posts the necessary journals to clear the liability on your VAT nominals. The journals posted are as follows (assuming positive liability values for Sales and Purchases):

Standard and Cash Accounting

2200	VAT on Sales*	Debit (Box 1 value)
2202	VAT Liability	Credit (Box 1 value)
2201	VAT on Purchases	Credit (Box 4 value)
2202	VAT Liability	Debit (Box 4 value)

The overall balance in the VAT Liability nominal represents the payment or reclaim for VAT (Box 5 value). Any adjustments on the VAT Return to Box 1 or Box 4 will be posted using the Corrections nominal 9999.

It’s important to be aware of this as the cumulative balance of this nominal will appear on your Profit and Loss (P&L) report.

Flat Rate Schemes

Recording transactions on a Flat Rate VAT Scheme accounts for VAT in the exact same way as with the Non-Flat Rate Schemes. All VAT liability including that on purchases will be recorded as normal. It is only at the time of creating the VAT Return that the Flat Rate Scheme criteria is applied.

At the time of generating the VAT Return, Accounting will also show a value which represents the gain or loss of monies due to using the Flat Rate Scheme over a Standard Scheme.

For Example:

Sales Invoice: £600 Net + £120 VAT = £720 Total
Purchase Invoice: £300 Net + £60 VAT = £360 Total

On a Standard VAT Scheme, the Box 5 value would be £120 – £60 = £60 payable.

On a Flat Rate Scheme (10%), the Box 5 value would be £72 payable. A difference of £12.

When the VAT Return is saved, the journals that post not only apply the Flat Rate VAT percentage but also account for the purchase VAT recorded and the value that is gained or lost from using this scheme.

2200	VAT on Sales	Debit (Total Sales Value)
2202	VAT Liability	Credit (Total Sales Value)
2201	VAT on Purchases	Credit (Total Purchase Value)
2202	VAT Liability	Debit (Total Purchase Value)

In addition, the following journals would be posted:

2202	VAT Liability	Credit (Difference Value)
4900	Other Income	Debit (Difference Value)

The above posting assumes a loss to the business on this return. Had the business gained money, then the journal would be the exact opposite of that shown.

Any adjustments on the VAT Return to Box 1 or Box 4 will be posted using the Corrections nominal 9999. It’s important to be aware of this as the cumulative balance of this nominal will appear on your Profit and Loss (P&L) report.

TIP: Adjustments to the return will not change the calculated difference value on the VAT Return.

▼ The postings made when you pay or make a reclaim from your VAT Return

When you have completed your VAT Return, you can choose to Submit by Other Means or Submit Online. Once the return has been saved you have the option to record payment or reclaim amounts from this VAT Return. Within the VAT Return itself, you can click the button that appears and enter the details to record this transaction.

Journals post as follows:

For a VAT reclaim

2202	VAT Liability	Credit (Box 5 value)
1200	Bank	Debit (Box 5 value)

For a VAT payment

2202	VAT Liability	Debit (Box 5 value)
1200	Bank	Credit (Box 5 value)