Unapplied Deposits
The Cash based VAT scheme requires that Output tax be accounted for when the payment is received. Usually a Sales Invoice will represent the VAT document and the process of applying a receipt will place the appropriate VAT amounts in the VAT return (VAT100). Where a user chooses to record a Receipt directly onto a customer ledger account (for say a payment on account from the Customer) and not apply the receipt to a Sales Invoice (perhaps because the Invoice cannot yet be raised) and close the VAT period in this condition; any VAT would not be accounted for and therefore the business is potentially non-compliant.
To allow flexibility as well as the ability to comply, a list of all currently un-applied Receipts that have been posted to Customer Accounts is available from the HMRC menu.
Each receipt that has been posted to a Customer Account and that remains unapplied to a Sales Invoice is listed here. To ensure compliant reporting for the Cash VAT and Flat Rate Cash schemes, review the transactions and apply a VAT rate to post a reversing VAT entry into the current VAT (VAT100) return.
The VAT amounts computed will be posted to the VAT return and then reversed into the subsequent VAT return, so that when the Receipt is finally allocated to a Sales Invoice(s) the VAT amounts will have already been dealt with in the correct VAT period.
If you do not wish to use this feature leave all items with the default VAT code - Ignore Item