Adjustments when changing from standard to cash VAT creating unwanted balance

chewbacca11 · ‎November 18, 2020

Hi. As of 1st April 2020 client moved to to cash VAT accounting from standard accounting. I've posted 2 adjustments each VAT qtr end to removed trade debtors as of 31st March 2020 that were paid in the quarter because VAT was filed and paid already in Q1 2020. I followed these instructions:

https://quickbooks.intuit.com/learn-support/en-uk/audit-log/adjust-your-vat-liability/01/239374

However, I have an issue, where I clearly don't understand how QB works, or QB can't handle this scenario (unlikely).

When the adjustments are posted it debits VAT control and credits the income account your are asked to create for this purpose ie an adjustment account. I now have the correct VAT balance ready to file, but an unwanted balance on an income account which doesn't belong there... Its not P&L, nor is is an asset or liability as its not due to any one.

It seem the VAT control logic is driven by date and when the change from standard to cash occurs the VAT control is pulled back in because of the paid date...which is in effect a single sided journal. The adjustment posted is a dual-sided journal, hence we see to have created an unwanted balance.

What don't I understand, and how do I correct this please? Thanks

Ashleigh1 · ‎November 18, 2020

Hello Chewbacca11,

Welcome to the Community page,

If this is the first time you are filing on cash you should delete the adjustment, then change the VAT back to accrual, save the settings, then change it back to cash and set the effective start date for new scheme as the date of the first filed period in QBO. This will generate the open transactions column on the VAT return which will make sure they dont over or under report thier VAT.

If you have already filed a period on QBO then you can move the adjustment amount to a different account, but we cannot advise where to move it to, that is up to you. the artical you used doesnt cover adjustments for changing accounting methods as there is already functionality in the system for this in the effect start date filed.

View solution in original post

Ashleigh1 · ‎November 18, 2020

Hello Chewbacca11,

Welcome to the Community page,

If this is the first time you are filing on cash you should delete the adjustment, then change the VAT back to accrual, save the settings, then change it back to cash and set the effective start date for new scheme as the date of the first filed period in QBO. This will generate the open transactions column on the VAT return which will make sure they dont over or under report thier VAT.

If you have already filed a period on QBO then you can move the adjustment amount to a different account, but we cannot advise where to move it to, that is up to you. the artical you used doesnt cover adjustments for changing accounting methods as there is already functionality in the system for this in the effect start date filed.

chewbacca11 · ‎November 18, 2020

Hi Ashleigh. Thanks for the prompt reply. This isn't am accounting question (I understand the double entry) I'm questioning the QuickBooks logic creating balances that aren't real. It seems the QB built in logic is flawed for this scenario. I can't simply move the balance to a new account, because which ever account I move it to its incorrect... I'm on to the 3rd cash quarter end and still having to make adjustments each quarter. Dr VAT control to remove the VAT already paid, Cr ??

I called Support for advise who helped me through the first filing, because it was tricky as there was a bug on the Effective Date For New Scheme field where is kept defaulting away from the chosen date. I believe we got it right. But since then I've not been able to speak to a Support analyst who has understood the issue I'm highlighting. I'm stuck.

JonpriL · ‎November 18, 2020

Hello @chewbacca11,

Since the issue persists, I'd recommend contacting our Customer Care Support. Even if you've reached out to them, only one of our specialists can look into the root cause of this unexpected behavior with the help of their tools.

To do so, here's an article you can read to learn more about how you can connect with our dedicated support: QuickBooks Online Support.

Additionally, I've got you this helpful article for reference in preparing your return: Submit a VAT return to HMRC - MTD for small businesses.

If there's anything else that I can help you with, please let me know in the comments. Stay safe!

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Adjustments when changing from standard to cash VAT creating unwanted balance