How to Switch from Cash to standard accounting for VAT?

Thank you Ashleigh1.   I thought that was all you had to do, but I am trying to find out what happens to all the unpaid Sales invoices and purchase invoices if we change from say 1st January 2021.  I imagine that only new sales invoices and new purchase invoices dated 1st January and later would be included in the next VAT return.  But what about the VAT on the old sales invoices that get paid after 1st January?  How does the VAT get accounted for?

Thanks in anticipation!

Hi GJE, 

Thanks for getting back to us, when setting the date for the new accounting scheme (within the tax settings) we recommend setting this back to the first transaction entered on QuickBooks, though you can enter any date, e.g. 1/01/1999, if you're needing to capture all of those in the current open return. :)

Get back to us below if you have any further queries! 

Thank you GeorgiaC.

Gosh that could be quite a massive hit on the first VAT return.

Just to be clear, if I set the date to the first transaction in QB, it won't capture paid invoices in the open return will it?

Just those paid or part paid?

Hi GJE,

Thanks for getting back to me, only open unpaid transactions will be included that have not yet been filed in a prior return. :)

I've also just switched to accrual accounting for VAT but the unpaid invoices have not pulled across. I tried to change the date but it keeps defaulting to 1/12/21 which is the date we switched.  Any help appreciated.

I want to ensure you'll be able to get the data you need, @Styles1. 

In QuickBooks Online (QBO), when switching to the Accrual accounting method for VAT, you'll have to enter the start date for the new scheme as the date of the first recorded VAT return in QBO. By doing so, you can ensure that the program doesn't miss anything. These also will show as open transactions on the prepare return page. 

For more information about updating your VAT settings, please visit this article: Set up and edit VAT settings, codes and rates. It also, includes steps to guide you in submitting a VAT return.

Also, to easily review the details of your VAT return, you can run the VAT Summary Report. This shows an overview of details for each box on your return. 

Feel free to get back here if there's anything else you need about switching accounting methods for your VAT. I'll be always around to assist you more. Take care. 

Hi - thank you Davina for the advice.  Where is the date to be entered that needs to go back to the first VAT return. In the section where I switched to accrual accounting the date keeps defaulting to 1 Dec 21 regardless of the date I put in.  Are you referring to the date on the VAT100 report or in the tax settings?

Regards

Hello Styles1, thanks for posting on this thread, so you enter the date you need to go to Taxes> VAT> Edit VAT> Edit Settings and enter in the date you changed from cash to standard in the effective date of new scheme box. 

Hi Ashleigh1

My VAT quarter was September - November 2021 on a cash basis.  I changed to accrual basis on 1 December 2021 after having submitted my Sept-Nov 21 VAT return to HMRC. The date for the new scheme was entered as 1 December 2021 and this date is now the default and cannot be changed.

Several invoices posted in the above period remained unpaid.

We have since made payments to most of those invoices however the details do not appear to pull through to the December 21 - February 22 VAT reports.

I have spoken to QB three times and was advised that as soon as we paid the invoices these would be pulled through to the latest VAT report.  The only way these invoices are pulled through is if I change the VAT 100 and detailed reports to 1 November 2021 but this also seems to pick up not just the unpaid invoices but also the purchasing values for the invoices already paid but accounted for in the last VAT return.

I am now totally confused as to the accuracy of any VAT reports for this new quarter.   I usually do monthly VAT reconciliations to make sure we are on track during the period.

I guess I will have to phone in again and speak to someone at QuickBooks - it is a shame that we no longer have access to VAT experts when we phone.

Hi Styles1.  I think you missed the advice from Devina's original post (see below).  Your "Effective date for new scheme" needs to be at least as old as the oldest outstanding invoice, not 1st December 2021.  I've been through the same switch, which was scary, but worked ok - actual switch date was 1st July 2021, but I had to put an effective date of 30/9/20 in order for the system to pick up the older unpaid invoices.   (It does mean of course that you'll have a bigger liability in this first accrual quarter than you would have had under cash accounting.)  Best of luck! 

Regards, Graham

.... "In QuickBooks Online (QBO), when switching to the Accrual accounting method for VAT, you'll have to enter the start date for the new scheme as the date of the first recorded VAT return in QBO. By doing so, you can ensure that the program doesn't miss anything. These also will show as open transactions on the prepare return page. "

Hi GJE

Thank you - I tried entering an earlier date but the system won't let me change it prior to 1 December 21 - it keeps defaulting to this date.

I can do a work around and enter the earlier date in all the VAT reports and see what happens - may need to do a manual adjustment and keep the evidence to support next quarter for HMRC.

Hi GJE

I have just done a complete reconciliation between the true December VAT position and the position if I change the date to 1 November to pull through the missing invoices.

If I follow this logic we will duplicate the purchases by circa £85,400 net with circa £17,083 VAT having already been accounted for int he previous VAT reporting period.

There must be a more accurate method for the VAT accounting that does not duplicate that already accounted for.

Regards

Sorry that you're stuck.  I think the only way it works accurately is by setting that effective date to the earliest possible, but as it won't let you, then not sure what you can do except as you say make an adjustment in this current quarter.  

I dont know if I'm too late to the party but if you change the settings back to cash and then save, then change the settings back again to accrual you can then change the date to take effect. Its just that once you've saved the changes to accrual, you can only change the date if you change the scheme you're on too. So you've got to trick the system into going back onto cash and then to accrual with the correct date again, before filing the return on the correct scheme! 

Hope this helps

Question: To change the VAT Scheme from Cash to Standard, within the present quarter there are invoices issued from previous months but collected within this quarter. How we will update these invoices and be included in the total amount in the detailed report and "Mark as filed" in the present quarter.

Hi there, @catherine. I'm here to help you switch the VAT scheme in QuickBooks Online (QBO).

Thanks for sharing the details of your concerns. To help you change the VAT accounting schemes, refer to the steps below:

1. Navigate to the Taxes menu and select VAT.
2. Then, click Edit VAT and select Edit settings.
3. Next, under the VAT accounting scheme, choose Standard VAT.

You'll see the effective date for the new scheme field if you have previous VAT submissions in QBO. This is the date provided by HMRC. For reference, check out this article: Change VAT schemes in QuickBooks Online. 

I also include this helpful resource that you can use as a guide in recording, adjusting and deleting VAT payments in the tax centre: Manage VAT payments in QuickBooks Online.

I'm always here ready to lend a hand if you have any other concerns about managing your sales taxes in QBO. Have a good one and stay safe.