VAT - Recording of VAT

VAT items are captured at the point of a transaction being entered.

Basic VAT recording

Output VAT on sales is entered when a sales invoice is raised, miscellaneous Income or retail takings are posted.

Simply select the appropriate VAT rate for the transaction Note that default VAT rates for a particular sales item can be set with the sales item. The Setting up Sales Items topic provides more background to sales items.

Similarly Input VAT on purchases are recorded when bills, payment transactions, card transactions, expense claims and mileage claims are entered.

System VAT Accounts

The system uses two VAT accounts. The VAT Control Account records all VAT relevant to transactions subject to VAT. The VAT Liability Account holds any amounts owed to or from HMRC at the end of VAT period closure. The system automatically transfers the amounts due to or from HMRC to the VAT Liability Account during the VAT period closure routine.

Recording of VAT under the Flat Rate Scheme

Create invoices, Miscellaneous Income and retail takings transactions normally and the system will adjust the VAT output tax to the flat rate percentage entered in the business profile. On the input tax side for bills, cards, cheques, electronic payments etc. the system defaults to a VAT rate of 'Out of Scope', so that no VAT impact on purchases is recorded.

It is possible, for a particular transaction, to overwrite the VAT rate, in which case the relevant VAT impact is recorded. You may use this in the situation where an expensive capital asset is purchased. (Section 3.8 VAT Notice 733)

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