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VAT: Getting started

SOLVED•by QuickBooks•828•Updated June 30, 2023

If you collect or pay value-added tax (VAT), sales or service tax, or similar taxes, QuickBooks Online helps you automate your tax tracking. This helps you keep accurate records of the tax that you collect and pay.

When you set up VAT, select the month when your current VAT period started and the filing frequency. QuickBooks Online displays the end date of the current period and the balance due for that period on the Taxes page.

Here are a few words you'll use a lot if your company collects VAT.

WordHow it relates to VAT setup
VAT agencyThe government agency that sets the requirements for VAT collection and payment (for example, HMRC).
VAT codeThe identifier that you use on forms to charge VAT. The VAT code is associated with a rate.
VAT rateThe rate is used to calculate the appropriate VAT for each transaction.
Each VAT rate links to a specific box of the VAT return. There can be separate rates for things you sell and things you buy.
To see all of your VAT rates, go to the VAT page from the Taxes menu, select Edit VAT, then select Edit rates.

Set up and manage these taxes on the VAT page.

QuickBooks Online automatically sets up a list of common VAT codes for you, based on where your company is located.

The most common interval for filling out and submitting a VAT return to HMRC is quarterly. Sometimes a VAT period can be yearly or monthly. If you use the annual accounting scheme, you only need to file one VAT return each year, but you must make interim VAT instalments based on an estimated liability for the year.

You can ask HMRC for a monthly tax period if you expect to regularly reclaim VAT (if you usually pay more VAT on your purchases than you charge on your sales). In that case, you will have to file 12 VAT returns per year.

You can't use monthly VAT periods if your turnover is below the VAT threshold and you registered voluntarily for VAT. You must file a VAT return even if you don't buy or sell anything VATable during your VAT period.

The accounting scheme that you use depends on how you track and pay your VAT.

  • Choose Standard VAT accounting if you track and pay VAT as of the invoice date.
  • Choose Cash if you pay VAT later, after your customers pay you.

Set up and manage these taxes on the VAT page.

When you change your VAT accounting scheme, the tax that is not yet paid on transactions becomes due in the current period.

To calculate the change in the amount that you owe, QuickBooks Online calculates the difference between the VAT you owe for the current period under your initial accounting scheme and the amount you owe under your new scheme.

For example, if you switch from cash to standard VAT accounting, all unpaid transactions that occurred in previous accounting periods are now included in the current period. The VAT on these transactions is now due and is included in the VAT liability for the current period.

You can change your VAT accounting scheme in QuickBooks.

  1. Go to Taxes and select VAT (Take me there).
  2. Select Edit VAT.
  3. Select Edit settings.
  4. Using the radio button, choose the VAT accounting scheme.
  5. Select Save.

Any transactions you have that fall into the current tax period will automatically adjust to the new VAT accounting scheme. For any unpaid transactions to be written off as bad debt, you will need to manually adjust your return to remove them.

Adjust the tax you owe:

  1. Go to Taxes and select VAT (Take me there).
  2. Select Prepare return.
  3. Select Adjust in the VAT line that you want to change.
  4. Choose an Adjustment date and Tax rate.
  5. Select the Adjustment account ▼ dropdown menu and choose an account.
    • If you are making the adjustment because you received a credit and you owe less VAT to the government, choose an income account that you create for this purpose.
    • If you are making the adjustment to include a fine, penalty, or interest on a VAT return, choose an expense account, such as Interest Expense or Non-deductible Penalties.
  6. In the Adjustment amount section, enter the amount of the adjustment.
  7. (Optional) Enter a Memo to describe the adjustment.
  8. Select Save.

When you enter a VAT adjustment, QuickBooks Online automatically adds a general journal entry to show the adjustment. The next time you file your VAT, the adjustment is included in the File VAT window. QuickBooks Online includes the adjustment on the VAT line that you chose in the VAT Adjustment window.

The adjustment is shown as a general journal entry in the related section of the VAT Detail report.

Enter or change your VAT registration number:

  1. Go to Taxes and select VAT (Take me there).
  2. Select Edit VAT.
  3. Select Edit settings.
  4. Enter the number as it should appear on printed sales forms.

VAT from transactions is posted to the control account. When you mark VAT as Filed in QuickBooks Online, the filed amount is moved from the control account into the suspense account. The amount is held there until you submit your payment to HMRC.

This handy checklist will help you get prepared for your next Making Tax Digital (MTD) VAT return submission in QuickBooks Online.

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