This article is for all UK VAT-registered businesses using QuickBooks Online to calculate and submit VAT to HMRC.
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. Find out whether you're eligible for Making Tax Digital (MTD) here.
Learn how to:
1. Set up VAT
To manage your VAT process, you will need to set it up in Taxes in QuickBooks. Start by clicking on Taxes on the left navigation, then select VAT.
You'll need to enter the following information:
- VAT Registration number
- Month the current period begins
- VAT accounting scheme
- Filing frequency
Now, let's get started.
- In Taxes, select Set up VAT.
- On the Set up VAT page, select the beginning month of your current VAT period.
- Select your filing frequency.
- 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
- Enter your VAT registration number.
- If your business is entitled, select the Flat Rate Scheme (FRS) checkbox.
- Select Save.
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 in this article.
2. Edit VAT settings, codes, schemes and dates
- Go to Taxes.
- Select the Edit VAT ▼ drop-down arrow.
- Select Edit settings or Edit rates.
You can change some (not all) percentage rates for particular VAT codes. You cannot change the standard rates for sales and purchases. You can change 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, we recommend that you switch methods after a filed period has been submitted. Once you select Save, QuickBooks will change the accounting scheme from that day onwards and will retrospectively adjust the liability amounts.
3. Add a tax or group rate or custom tax
To set up an additional tax rate, group rate or custom tax to your company, follow these steps.
Note: Once you create a tax agency, you cannot delete it.
- Go to Taxes.
- Select Add Tax.
- 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.
- Select Save.
To view your new VAT agency, click on the drop down arrow next to the current VAT agency or click the arrow on the right side of the Taxes dashboard.
4. Show/hide tax codes
If you can't see a particular code in QuickBooks, it may be turned off. To turn on codes in QuickBooks follow these steps:
- Go to the Taxes page in QuickBooks, select Edit VAT and then Edit Rates.
- 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.
- Use the toggle feature against the VAT code you want to turn on/off.
5. Turn off VAT
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:
- Click the Gear icon and select select Account and settings.
- In the Advanced, select the pencil Edit icon in Accounting.
- Change the Default tax selection to No VAT.
- 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
- In Banking, and select the Rules tab.
- Select New rule.
- Name the new rule with something memorable such as ‘VAT deregistration money in’.
- Select Money in.
- Change Description to Amount.
- In the next field, select Is greater than.
- Enter 0.01 in the value field.
- Select No VAT for the tax rate.
- Repeat the steps for Money out.
To turn off Making Tax Digital (MTD)
- Go to the gear icon.
- Select Account and Settings.
- In Advanced, go to Making Tax Digital.
- Select Learn how to Disconnect and follow the steps.
6. Calculate 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.