VAT cash accounting and deposits in advance

Hello WCB1, Thanks for posting on the Community page, you should use the second set of steps, numbered 1-5 to record the prepayments in a way that will show on the VAT return on the payment date. On this help article How to record Customer prepayments for Products or Services 

Hi,

We have literally hundreds of prepayments as almost every customer makes a small deposit to secure their order. The invoices (when created) get transferred from Blind Matrix software directly into Quickbooks so there would be no option to add a line at the end of each invoice to match off to a prepayment amount. These customer balances need to be tracked through individual customer ledgers so I do not think your suggestion would be practical and would lead to much more admin. Is there no way for Quickbooks to recognise the VAT on cash accounting according to the date the cash was received after it is matched to an invoice, rather than the date of the invoice (which will be later)?

Hi there, @WCB1. I want to ensure this will be taken care of. 

Thanks for getting back here. In QBO, you'll have to create an invoice first before applying for its payment. VAT cannot be accumulated if there's no invoice created upon receiving payment. 

To fix this, you can track the prepayments against a current liability account to ensure VAT is reported to HMRC when the payments are received. Here's how:

1. To start, create a current liability account to track prepayments (you can name it a Prepayments account). For the detailed steps, check out this link: Create a Current Liability account.
2. Next, create a service item, name it as Pre-Payments (or anything you preferred that can be found easily), and select the Current Liability Account in the Income Account field.
3. After that, enter Sales Receipts for each pre-payments for the invoices and post them to the service item.
4. Select the correct customer name, payment date, and bank account.
5. In the PRODUCT/SERVICE field, choose the Prepayments account and enter the amount received
6. Ensure to select the VAT Code and click Save and close when done. 

Once done, create an invoice, ensuring the prepayments are taken into account. Let me guide you on how.

1. Go to the + New button and choose Invoice.
2. Input the customer's details as normal, with line items including the services provided, and select the relevant VAT code(s).
3. On the last line item, select the customer prepayments item created.
4. Then, input the amount of the prepayments as a Negative value, and select the VAT Code used.

Then, pay the balance if there's a balance due after the prepayment is applied. 

For reference, please read this article: How to record Customer prepayments for Products or Services. I also recommend reaching out to your accountant for additional guidance in managing the prepayments of your customer. They can also help you in making sure the program will account for the VAT on the date payment is received. If you're not affiliated with one, you can use our Find an Accountant Tool to look for one near you. 

I'll include this helpful resource that you can use as a guide in helping you handle VAT in QBO: Manage VAT payments in QuickBooks Online.

I'm always here ready to lend additional guidance in making sure you account for your invoices correctly. Please don't hesitate to leave a reply below. Have a good one and stay safe.