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Set up and edit VAT settings, VAT codes, and VAT rates

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

Set up VAT

To manage your VAT process, you will need to set it up in the VAT Centre. To access the VAT Centre, start by clicking on VAT on the left navigation. Setup VAT by entering a VAT Registration number, the month the current period begins, and the VAT accounting scheme and filing frequency. Once that is done, you are ready to file your VAT. You can always edit your VAT settings after setup.

Set up VAT:

  1. Go to Taxes, then select Set up VAT.
  2. On the Set up VAT page, select the beginning month of your current VAT period.
  3. Select your filing frequency.
  4. Next, choose your VAT accounting scheme.
    • Standard: also known as accrual, select this option if you count your income when you invoice your customer
    • Cash: select this option if you count your income when you receive money from your customer
  5. Enter your VAT registration number.
  6. If your business is entitled, select the Flat Rate Scheme (FRS) checkbox.​
  7. Select Save Your VAT codes are now set up.

Edit your VAT settings, codes and rates

  1. Go to Taxes.
  2. Select the Edit VAT ▼ drop-down arrow.
  3. Select Edit settings or Edit rates.

​Edit settings: Make changes to your VAT registration number, changes to your filing frequency, (ex. move from monthly to quarterly), or amend your VAT accounting scheme from a cash basis to the accrual basis.

Edit rates: Amend some (not all) percentage rates for particular VAT codes. You cannot alter the standard rates for sales and purchases. You can amend the rate of percentage for reduced sales and purchase tax. A drop-down rate history shows the different rates used.

Note:  If you want VAT to only show on your transactions and reports, select 'Expenses' in the Account field when editing your VAT settings. If you want VAT to show on the VAT return, choose 'Liability'.

Edit accounting scheme: If you change between cash and accrual VAT, remember to set the effective start date before submitting your next VAT return.

Note:  If you attempt to change the date after changing schemes it won't work and you will need to switch back to the previous scheme before changing the new one to set the date. Make sure to match the first day of the first filed VAT period to account for any open transactions you may have. QuickBooks will automatically look back exactly one year from the end date of your last VAT return.

To edit the date, simply go to VAT settings and then Effective date for new scheme. The Open Transactions column will appear on the VAT report.

Add additional tax rate, group rate, or custom tax

To set up an additional tax rate, group rate, or custom tax to your company, follow the steps below.

  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.

From April 2019, all eligible UK VAT-registered businesses will have to keep their financial records in a digital form and submit their VAT returns using approved software. Find out whether you are eligible here.

If you are eligible, you'll have to authorise QuickBooks to interact with HMRC. You can choose to do so now, or later, as long as it is completed before submitting your VAT return.

Calculating VAT at line or invoice level

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.

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 updating these manually.

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. Go to the gear icon.
  2. Select Account and Settings.
  3. Go to the Advanced.
  4. In the Accounting section, change the Default tax selection to No VAT.
  5. Select Save.
  6. Select 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. In Banking, and select the Rules tab.
  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. Go to the gear icon.
  2. Select Account and Settings.
  3. In Advanced, go to Making Tax Digital.
  4. Select Learn how to Disconnect and follow the steps.

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