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Set up and edit VAT settings, codes and rates in QuickBooks Online

SOLVEDby QuickBooksQuickBooks Online653Updated May 18, 2022

This article is for all UK VAT-registered businesses using QuickBooks Online to calculate and submit VAT to HMRC.

Note: From April 2022, all eligible VAT-registered businesses in the UK will have to keep their financial records in a digital form and submit their VAT returns online through Making Tax Digital (MTD) compliant software.

Find out if you're eligible here. Remember to turn on MTD and connect QuickBooks to HMRC before you submit a VAT return.

Set up VAT in QuickBooks Online

To manage your VAT process, you will need to set it up in Taxes in QuickBooks. You'll need to enter the following information:

  • VAT Registration number
  • Month the current period begins
  • VAT accounting scheme
  • Filing frequency
  1. In Taxes, select Set up VAT.
    • You can also do this by selecting Set up VAT in QuickBooks from the Get things done page.
  2. Choose the month you need to start calculating your VAT from–think about the VAT period you're currently in and select its start month.
  3. Select your filing frequency, this is how often you submit a VAT return to HMRC.
  4. Choose your VAT accounting method.
    • Select Standard (also known as accrual) if you record income and expenses when you send the invoice or receive the bill, regardless if the invoice of bill was paid or not.
    • Select Cash if you record income and expenses at the time you actually receive a payment or pay a bill.
  5. Enter your 9-digit VAT registration number.
  6. If your business is entitled, select the Flat Rate Scheme (FRS) checkbox, enter the FRS percentage and the tax registration date.
  7. Select Next and OK.

Your VAT codes are now set up! Once that's done, you're ready to file your VAT. You can always edit your VAT settings after setup–which we'll show you how to do next.

  1. Go to Taxes.
  2. Select the Edit VAT ▼ dropdown arrow.
    • If you select Edit settings, you can make changes to the following:
      • VAT period
      • Filing frequency
      • Accounting method
      • 9-digit VAT registration number
      • Other VAT options like FRS, FRS percentage and tax registration date
      • Turn Making Tax Digital (MTD) for VAT on/off
    • If you select Edit rates, you'll see a list of VAT rates.
  3. Select Save.

Here's how you can set up an additional tax rate, group rate, or custom tax for your company. Note: Once you create a tax agency, you cannot delete it.

  1. Go to Taxes.
  2. Select Add Tax.
  3. Select the type of tax you want to add.
    • Tax rate: add another tax rate for VAT, such as a local tax that is not already included.
    • Group rate: combine multiple taxes and make applying them to your transactions easier. All taxes you include are calculated and charged at once, but we track them separately for you.
    • Custom tax: add a tax agency and a tax percentage, such as an environmental levy, hotel, or petrol tax.
  4. Select Save.

View your new custom tax agency

  1. Go to Taxes.
  2. Select the dropdown arrow next to the current VAT agency, or select the arrow on the right-hand side of the Taxes dashboard.

If you can't see a particular code in QuickBooks, it may be turned off. To turn on codes in QuickBooks follow these steps:

  1. Go to Taxes and select VAT (Take me there).
  2. Select Edit VAT and then Edit Rates.
  3. Select the gear icon above VAT rates and select Include inactive. This will show a list of all the codes that are currently turned off.
  4. Use the toggle feature against the VAT code you want to turn on/off.

If you’ve deregistered from VAT you will want to turn off VAT in your settings too. This will stop VAT from showing in future transactions and bank feeds, and will save you time from having to update these manually in QuickBooks.

While you won’t be able to turn off VAT completely, there is a quick and simple way to default your transactions to show ‘No VAT’ and here’s how:

  1. Select the Gear icon and select Account and settings.
  2. In the Advanced, select the pencil Edit icon in Accounting.
  3. Change the Default tax selection to No VAT.
  4. Select Save and then Done.

Now when you go to create a transaction in QuickBooks, the VAT column will be hidden under the Default tax rate selection options.

To turn off VAT in banking feeds

If you have bank accounts connected to QuickBooks, you will need to create a new rule to ensure transactions are set to No VAT in your banking feed

  1. Go to Bookkeeping and select Rules (Take me there).
  2. Select New rule.
  3. Name the new rule with something memorable such as ‘VAT deregistration money in’.
  4. Select Money in.
  5. Change Description to Amount.
  6. In the next field, select Is greater than.
  7. Enter 0.01 in the value field.
  8. Select No VAT for the tax rate.
  9. Repeat the steps for Money out.

To turn off Making Tax Digital (MTD)

  1. Select the Gear icon and select Account and settings.
  2. In Advanced, go to Making Tax Digital.
  3. Select Learn how to Disconnect and follow the steps.

According to HMRC's VAT guide, if you calculate VAT at line level or invoice level, you must not round the VAT figure down. But, you can round up (or down) each VAT calculation.

  • Round down if the VAT on any transaction comes to less than 0.5 of one penny
  • Round up if the VAT comes to 0.5 of one penny or more

Read the HMRC trader's records manual for more information.

More helpful links

Here's a list of the common VAT codes in QuickBooks Online.

Learn how to submit a VAT return to HMRC.

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