VAT - Changing from Standard to Cash Accounting

This describes a process of changing a business vat scheme from standard to cash accounting.

The difference in the schemes

Under the cash accounting VAT scheme output tax is only paid for in the VAT period in which payment is received from a customer. Input tax is claimed in the VAT period in which payment is made to a supplier. The change from the standard to the cash accounting scheme means that VAT on documents that are outstanding has already been accounted for and must not be reported or paid again. New documents will only be accounted for when the cash is settled.

When can a change normally be made?

No formal application to join the cash accounting scheme is required although it may not be applied retrospectively.

It is strongly recommended the user consults with their advisor before making the change.

Normally the scheme is started at the start of a VAT period.

Dealing with the Change in Liberty Accounts - Summary

Confirm the final standard VAT period
Process all outstanding transactions that should be in that period
Accept and file the VAT return for that period
Switch the VAT scheme on the system to cash accounting
Download the Open Invoices Report as at the last day of the closed vat period and store the Cash VAT Outstanding amount
Download the Unpaid Bills Report as at the last day of the closed vat period and store the Cash VAT Outstanding amount
When accepting the current period return adjust the second column of the VAT100 with the outstanding VAT amounts calculated above
Store all reports

Confirm the final standard VAT period

For example, if the final standard VAT period is to be the 31 December 2017 then any adjustments will need to be made normally when filing the return for the next VAT period 31 March 2018.

Process all outstanding transactions

Bring the period up to date by entering all outstanding items.

Accept the VAT Return

Accept and file the VAT100 return in the usual way, for example the 31 December 2017 period.

Switch the VAT scheme to Cash Accounting

On the VAT Configuration menu, change the scheme to Cash Accounting

HMRC - Configure VAT - VAT Scheme - Select Cash Accounting Scheme - SUBMIT

Transactions dated in the current (open) period will be picked up automatically so it is only those outstanding transactions for closed periods for which adjustment is necessary.

Download the Open Invoices Report as at the last day of the closed vat period and store the Cash VAT Outstanding amount

The report is found under the Reports menu

Reports - Customers - Open Invoices

Define the report by selecting 'All' customers and an 'As At Date' that is the last day of the recently closed VAT period.

Choose 'XLS' as the output and click GENERATE to prepare the report.

Click DOWNLOAD when the button appears to download the file to the local machine.

Open the file in Excel and sum the column 'Cash VAT Outstanding' and compute the equivalent Net amount (Document Value less VAT) for each item included in the VAT outstanding total. Sum this also and finally store these figures.

Download the Unpaid Bills Report as at the last day of the closed vat period and store the Cash VAT Outstanding amount

The report is found under the Reports menu

Reports - Suppliers - Unpaid Bills

Follow the same processes as for Open Invoices above.

Closing the new Cash Accounting Period

Navigate to the VAT100 return as usual but before accepting amend column 2 by reducing the values displayed by the amounts above.

The adjustments to column 2 are as follows:

Reduce Box 1 by the cash vat outstanding from the open invoices report
Reduce Box 6 by the net amount from the open invoices report
Reduce Box 4 by the cash vat outstanding from the Unpaid Bills report
Reduce Box 7 by the net amount from the Unpaid Bills report

Store all reports

Store all reports for future reference.