Vat and Liberty Accounts

8/9/2019 Vat and Liberty Accounts

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Issue dated 20 th September 2013

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VAT (Value added tax)Note it may be possible to use the Adobe Acrobat bookmarks facility to navigate this document

If your enterprise is registered for VAT then the system will handle all of your VAT transactions andproduce VAT reports. You can also file your VAT100 and VAT101 (ECSL List) returns online through theGovernment gateway to HM Revenue and Customs (HMRC).

The principles of VAT are simple:On sales to your customers (supplies) you charge and collect VAT – known as OUTPUT TAXYou deduct the VAT you have been charged by your suppliers (acquisitions) – known as INPUT TAXYou pay to or receive from HM Revenue and Customs the difference.

Unfortunately the actual operation of VAT is more complex. Businesses are obliged to cope with multiplerates of VAT, exempt supplies, rules for trading with European Union as well as other imports and exports.VAT on certain types of business expenses cannot be recovered as input tax.The system will deal with all of these issues provided you make a little effort to set up and follow theprocesses accurately.As well as the standard VAT scheme, HM Revenue and Customs allow some special schemes i.e.

Cash Basis Scheme – see VAT notice 731on the HMRC web siteFlat Rate Scheme - see VAT notice 733 on the HMRC web siteFlat Rate Scheme cash based turnover - see VAT notice 733 on the HMRC web siteAnnual Scheme - see VAT notice 732 on the HMRC web site

The system will deal with these schemes.

To users unused to it, the language of VAT can be confusing and so we strongly recommend that if youare uncertain about any aspect of VAT recording and reporting you should seek appropriate advice fromyour advisors.

The use of online filing of VAT returns is efficient and saves time, it can also reduce the possibility oferrors, and we commend it to you. It is quick and easy to set up; see the Online VAT filing user guide forfull details.


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Table of ContentsVAT Schemes ........................................................................................................................................................... 4

Setting up for Recording VAT .............................................................................................................................. 4Flat Rate Configuration ..................................................................................................................................................... 7

VAT Codes (Rates of VAT) .................................................................................................................................... 8

Registration and deregistration .......................................................................................................................... 9Deregistration ...................................................................................................................................................................... 9

Transition from one VAT scheme to another ................................................................................................ 10

Recording of VAT .................................................................................................................................................. 10Recording of VAT – Flat rate scheme ........................................................................................................................... 11

Special Situations – Standard and Cash based Schemes ......................................................................... 12a. Cash Scheme and Miscellaneous Deposits ........................................................................................................... 12 b. Selling goods and services to customers in the EU ................................ .................................. .......................... 13 c. Selling goods to other parts of the world (exports) .............................................................................................. 14 d. Buying goods from EU suppliers .............................................................................................................................. 14 e. Buying goods from other parts of the world (imports) ....................................... .................................. ............... 15 f. Buying and selling services outside of the UK (Reverse Charge) ................................ ................................. .... 16 Reverse Charge Procedure ............................................................................................................................................ 16

Special Situations – Flat rate and Flat rate cash based turnover method ............................................. 17a. Amending the Flat rate effectivity dates / Ending flat rate ................................................................................. 17 b. Change of Flat rate percentage ................................. .................................. ................................... .......................... 18 c. Cash Scheme and Miscellaneous Deposits .............................. .................................. .................................. ......... 18 d. Selling goods and services to customers in the EU ................................ .................................. .......................... 19 e. Selling goods to other parts of the world (Exports) ............................................................................................ 20 f. Buying goods from EU suppliers ................................. .................................. ................................... ........................ 20

g. Buying and selling services outside of the UK (Reverse Charge) ...................................................... 20

VAT Reporting and VAT100 / VAT101 (ECSL) returns .................................................................................. 21VAT Online Filing ............................................................................................................................................................... 21 VAT 100 Reports ................................................................................................................................................................ 21 VAT101 (EC Sales List) ...................................................................................................................................................... 24 VAT Transactions Report ................................................................................................................................................ 24 Transactions by VAT Code Report ....................................................... ................................... .................................. .. 26 a. Annual Accounting Scheme ...................................................................................................................................... 26

Completing the VAT return and paying any VAT Liability ......................................................................... 27

VAT Refunds .......................................................................................................................................................... 27

Dealing with a VAT Tax Inspection ................................................................................................................. 28

Specialised VAT Transactions .......................................................................................................................... 28


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a. Disallowable VAT such as entertainment expenses ..................................................... ................................... .. 28 b. Dealing with Fuel scale charges (fuel provided for company vehicles) ........................................................ 29 c. Making a VAT Partial Exemption Adjustment ........................................................................................................ 31 d. Dealing with Late Invoices ......................................................................................................................................... 32 e. Dealing with errors and omissions ......................................................... .................................. ............................... 32 f. Bad Debts ........................................................................................................................................................................ 32 g. If you incur VAT on other parts of the EU ................................. .................................. ................................... ........ 33


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VAT Schemes

In the standard scheme VAT is accounted at the tax point date shown on invoices raised or received. TheCash Accounting Scheme allows you to account for VAT on the basis of cash amounts actually receivedor paid out. Certain conditions must be fulfilled before you can use the cash accounting scheme, pleasecheck with your advisor before selecting this option.Annual Accounting is aimed at smaller business entities, the scheme works by allowing one return eachyear. A number of interim payments (usually nine) are made during the year and a balancing paymentmade when the annual VAT return is made within two months of the end of the accounting year.The Flat rate Scheme offers another option. Under the normal VAT rules the details of the VAT and thenet value have to be recorded for each sale and purchase transaction. For the flat rate scheme however it

is not necessary to record the individual VAT details, but simply accumulate the value of all VAT inclusivesales (supplies), including any zero and exempt rated supplies, and apply a flat rate percentage to thetotal in each VAT period. No separate claim for input VAT (VAT on purchases) is allowed or necessary.The scheme is only open to business whose annual taxable turnover does not exceed certain limits.(Please check with your advisor)In essence there are two versions of this scheme. The first is based upon the VAT inclusive turnovercalculated as invoices are raised (the accruals principle of the standard VAT scheme). The second isbased upon a cash basis i.e. when invoices are actually paid, equivalent to the Cash VAT scheme.

Setting up for Recording VATIf you are registered for VAT then the system will need to be set to track VAT. This is done in the Profilescreen. Having done this a VAT configuration screen allows the user to configure VAT appropriate to thebusiness requirements.

We suggest you have to hand the following pieces of information and knowledge of the VAT scheme youare using:

VAT Registration NumberThe number given by Revenue and Customs on registration, it should appear on all your business invoicesand will do so on system produced invoices when entered here. This number is shown on the certificateof registration.

Date of registrationThe date of VAT registration confirmed on the certificate of registration issued by HM Revenue andCustoms.

PostcodeThe postcode of the registration address, the business postcode that appears on the VAT registrationcertificate or has been formally amended to HMRC records.

VAT Scheme:Choose either the Standard Scheme, or the Cash Accounting Scheme (see notes above)


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Last month of VAT Quarters:Usually VAT is accounted for on a quarterly basis however you can account on an annual or monthlybasis. If you are not sure as to your VAT accounting periods confirm with your advisor.

Next VAT Period End Date:The date of the last day of your open VAT accounting period. This date needs to be set initially by theuser. Subsequently, the process of accepting a VAT return will automatically roll the date forward asappropriate for either quarterly or annual schemes.

Once you have the above information, access the profile via the Entity Name menu

Entity Name Profile Accounting Options Tab

Click on the Track VAT box to activate.

A VAT menu is now visible in the top-level menuitems. Messages and warnings may appear requestingthe user to complete the configuration.

The next stage is to configure VAT to operate as

required by the business.This is done in the Configure VAT screen.

VAT ! Configure VAT

A VAT configuration screen is presented.

The details of your VAT registration number go in the VAT Number field The two-character alphanumericcountry code prefix (GB for the UK) is required to appear on sales invoices issued with zero rated suppliesto vat registered customers in EU member states. To ensure this happens prefix the VAT number with thecode. Note that the validity of a VAT number is checked by the system against HMRC validity algorithms.

Also enter the Registration Date.

The Final Return (Deregistration Date) will only be entered if it is indeed the final return for the business.See the de-registration section below.

If you would like to use the Government Gateway to file your VAT100 and ECSL (VAT101) online directlyfrom the system click the Use Online VAT Filing box. With online filing is a requirement to use electronicpayment, if you would like the system to automatically post the cash payment (or receipt) select therelevant bank account for the posting to go to from the AutoPost Direct Debit drop down box.


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If you are using the flat rate scheme click the Flat Rate VAT box, note that if you are using the flat ratecash based turnover method, please be sure that Cash accounting scheme is also selected in the VAT

Scheme box.

Select from the drop down box the VAT Scheme operated, either standard or cash.The next two fields require details of the VAT Periods that apply for reporting and the Next VAT PeriodEnd Date that will apply as you start to use the system. Note that period end dates are usually at a month end, but it is possible to have a mid month such as the5 th , just enter the date as normal. Note that dates of the 28 to 31st will at the next VAT period default tothe calendar month end .

If you are UK VAT registered trader that supplies goods, or a trader that supplies services that would beaccounted for by a registered trader in another EU member state using the reverse charge mechanism,


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then a quarterly (or monthly) EC sales list (VAT101) return is required by HMRC. Select the appropriateECSL Filing Cycle for the business. The default is quarterly. The filing must take place within 21 days afterthe calendar quarter end for online filing or 14 days if using paper filing. If the quarterly turnover exceeds alimit (£35k from 1 st January 2012) for goods then the ECSL cycle is monthly. Enter the date of the NextECSL period End. This will only need to be set once, unless the filing cycle is amended. If using quarterlyfiling this will be 31st March, 30th June, 30th September or 31st December. Monthly filing will require themonth end date.

Note that the ECSL filing deadlines are not necessarily the same as the VAT 100 deadlines for thebusiness.

If online filing for ECSL is being used the VAT postcode is required. This is the postcode that appeared onthe registration documentation, or was subsequently formally amended with HMRC. Click Submit to save the details.

The recording of VAT transactions starts with immediate effect, including all transactionsdated this day.

Flat Rate Configuration

If you have ticked the flat rate scheme box you will be directed to an additional screen allowing for inputof flat rate percentages and effectivity dates.


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Click Add Item and in the first instance the From Date is the date when HMRC granted permission for theentity to use the flat rate scheme and the To date is the date when the use of the particular rate changesor the scheme changes to some other. These dates are important for the correct transition betweenschemes.Enter the flat rate percentage (In the format xx.xx) to be applied in the Flat Rate box.Note that if the registration date is less than 12 months in the past it is important to enter a record for adiscounted rate ending on the day before the first anniversary of VAT registration. A second record it then

required with a From Date on the anniversary with the main rate.

Click Submit to save the details.

VAT Codes (Rates of VAT)

VAT codes are used to select VAT rates and control how the system deals with VAT transactions. Theaccurate use of codes ensures that the recording and reporting of VAT is correct.

Current VAT rates are 20%, 5%, or 0%. The correct rate code needs to be selected when a transaction isentered.If/when the Government alters VAT rates; the new ones will be made available from the appropriate dates.Additionally some items are exempt from VAT and the exempt rate will need to be selected. An exampleof an exempt supply is the purchase of insurance.Details of what rates apply to what are available from Revenue and Customs publications and youradvisor.

Some special codes exist to deal with particular circumstances and these are discussed below.

If your business trades in the European Union either selling or buying, Revenue and Customs have some

additional recording and reporting obligations. The key for the system to handling these transactionsaccurately is that the country of the customer or supplier is set up correctly. See Setting up a customer or

Setting up a supplier user guides and also below.

Average (Avg.)This code can be used where the transaction is recording an aggregation of mixed VAT codes in a singleline entry with the VAT amount manually set as required.This code will also appear in VAT transactions reports in an entity using the cash basis scheme. This isbecause there is a possibility that a transaction with mixed vat rates may be partially paid, in which casethe vat has to be pro-rated as an average rate.


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Out of ScopeThis VAT code is only used where a transaction is not in the VAT system at all. For example payments intoa money purchase pension scheme are Out of Scope because they are equivalent to savings. Paymentsof salaries or wages are also out of scope as are repayments of director’s loans. Using this code will resultin no VAT reporting impact.

Use this code in making or receiving actual VAT payment amounts.

NoneThis code is used where there is no VAT on a transaction. This is not the same as zero rated or exempt.

The impact in the system is that the value of the purchase is included in the VAT 100 return, but no actualVAT. You would use this for instance if a purchase is made from a non-VAT registered supplier, whowould not add any VAT. The purchase value is then picked up in the VAT100 return.

Registration and deregistration

There is an obligation to register when the value of your businesses taxable supplies (or distance sales orEuropean Union acquisitions) in the prior 12 months exceed the current threshold. You must notify the HMRevenue and Customs National Registration Service within 30 days from the end of the month that thisoccurred. Alternatively if you expect your taxable supplies (or EU Acquisitions) in the next 30 days alone

to exceed the threshold, you must notify within 30 days of that date. You will have to account for VAT thefirst day of the second month after you exceeded the registration threshold.We strongly recommend that you consult with your Advisor in deciding your VAT position.

When your VAT registration has been confirmed, you will know the date from which you must account forVAT.

Deregistration

Under certain circumstances deregistration may be allowed or required. In that event a date ofcancellation will be notified by HMRC. In the VAT configuration screen enter the date provided by HMRCfor deregistration in the Final Return (Deregistration) Date box. The current VAT100 return will now

default to this date and all open VAT transactions dated up to and including this date will be included.Finalise the return in the usually way.

If there are any transactions in the system dated after the final return date showing a VAT implicationthese will need to be amended to remove any VAT. When this is complete return to the Business ProfileAccounting Options tab and un-tick the Track VAT box. From now on transaction input screens will notshow any VAT reference.

If in the future reports are required from any closed VAT periods simply temporarily switch Track VATback on to see the VAT menu and VAT reports.Viewing any transactions from the period when VAT was in effect will show the VAT impact as recorded

and reported.


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Transition from one VAT scheme to another

These are not trivial changes and it is recommended that they be completed with the assistance of youradvisor.On the day that the transition is agreed (usually at the beginning of a VAT reporting period), amend theVAT scheme selection box in the VAT tab of the business profile.

VAT Conf igure V T VAT Scheme

Try to ensure that all transactions subject to the old scheme are entered in to the system before thechange date. On the change date and subsequently, all transactions will be subject to the new scheme.

If you subsequently find that a transaction should have been entered prior to the change date, you mayhave to make manual corrections in preparing your VAT 100 return.

It is important that the VAT 100 return immediately after the transition period is thoroughly reviewed,preferably by your advisor, to ensure that the VAT under the new scheme is accurately shown. Wesuggest that a VAT transaction report under the old scheme is prepared before modifying the scheme. Anew VAT transaction report (for the same VAT period) is run immediately after the scheme change. Thesetwo reports will assist in the reconciliation process and identifying any necessary manual adjustments.

In the particular circumstances of a transition from Cash to Standard scheme, the Open Invoices andUnpaid Bills Reports (Accessed from Reports – Accounts Receivable or Accounts payable) can bedownloaded as at a specific date into an XLS (Excel) file where the VAT and Gross amounts of the originaldocuments (Invoices, Bills and Credit Notes) and amounts outstanding are given to help in thereconciliation process. Note the PDF report does not show this level of detail.

Recording of VAT

VAT items are captured at the point of a transaction being entered. Output VAT on sales is entered whena sales invoice is raised, miscellaneous Income or retail taking are posted.

In this example a VAT rate of 20.0% has been selected for this sales item.

Note that default VAT rates for a particular sales item can be set with the sales item, see Setting up SalesItems user guides.

Similarly Input VAT on purchases are recorded when bills, cheques, card transactions, expense claims andelectronic payments are entered.

The system uses two VAT accounts. The VAT Control Account records all VAT relevant to transactionssubject to VAT. The VAT Liability Account holds any amounts owed to or from Revenue and Customs at


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the end of VAT period closure. The system automatically transfers the amounts due to or from Revenueand Customs to the VAT Liability Account during the VAT period closure routine.

Recording of VAT – Flat rate scheme

Create invoices and post retail takings normally and the system will adjust the VAT output tax to the flatrate percentage entered in the business profile. On the input tax side for bills, cards, cheques, electronicpayments etc. the system defaults to a VAT rate of “Out of Scope”, so that no VAT impact on purchases isrecorded.


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

Special Situations – Standard and Cash based Schemes

a. Cash Scheme and Miscellaneous Deposits

The Cash based scheme requires that Output tax be accounted for when the payment is received. Usuallya Sales Invoice will represent the VAT document and the process of applying a receipt will place theappropriate VAT amounts in the VAT return (VAT100). Where a user chooses to record a MiscellaneousDeposit directly onto a Sales Ledger account (for say a payment on account from the Customer) and notapply the deposit to a Sales Invoice (perhaps because the Invoice cannot yet be raised) and close theVAT period in this condition; any VAT would not be accounted forand therefore the business is potentially non-compliant.To allow flexibility as well as the ability to comply, a list of allcurrently unapplied Miscellaneous Deposits that have beenposted to Customer Accounts is available from the VAT menu.

It is recommended that this list be reviewed prior to accepting aVAT Return, see example below.

If a user does not wish to do anything, leave the screen and proceed to close the VAT period, if not, thelisting allows a user to define the VAT rate that they would wish to apply to any particular deposit asshown below: -


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When Submit is clicked a reversing VAT Journal is created for each item. It posts a VAT amountcomputed from the selected VAT code to a sub account of the VAT Control Account - VAT on ACCOUNT(Cash Scheme) . The VAT100 and the VAT transactions Reports will record the appropriate VAT andturnover amounts when the return is accepted for filing; also the initial journals are locked because theyare included in a closed VAT filing.Note the balance on the VAT on ACCOUNT (Cash Scheme) will normally be zero as the Journals arereversing.

When in the next or subsequent VAT periods the Miscellaneous Deposit is finally applied, the VAT will beprocessed as normally but because there is a reversed amount from the Journal the impact will be anadjusted amount If a different VAT rate is applied to the sales invoice or no further impact.

A user may cancel journalising unapplied deposits any time prior to accepting a VAT return, by going backto the unapplied listing, where the VAT codes will by default, be reset to Ignore Item and clicking Submitagain .

b. Selling goods and services to customers in the EU

Provided your EU customer is VAT registered and you have their VAT number and you indicate on thecustomer maintenance screen that you have validated it (See Customer Maintenance user guide formore information) you are usually able to invoice with a zero rated VAT rate; If not, VAT at the appropriaterate must be charged. A consequence of the Customer VAT number validation is that the system willdefault to a zero rate, but the user must satisfy themselves that this is appropriate. If you are unsure youare strongly recommended to take professional advice.Sales invoices will have text added for compliance purposes as follows.If the sales item is set as Goods and zero rated then “Includes zero rated intra-EC supply” is shown. Forother zero rated supplies the text is “may be subject to reverse charge in the country of receipt”. If a VATrate of exempt is selected then the text is “Includes exempt supply”.

In the case of an invoice to an EU customer designated in Euro (or other non sterling currency) the invoicewill display any VAT amount in both sterling and currency. Additionally where a business is using the cashbased scheme the VAT will be recorded on the VAT 100 return when the invoice is created, not when

payment is received.

Part of the reporting procedure to HMRC, requires that a quarterly (or monthly - see note in the Setting upfor Recording Vat section above) EC sales list is submitted. Provided you have set up the details of VATregistration number and country of your EU customers, a list can be prepared via the VAT menu. Check toensure that the country prefix code is set both for the entity (VAT configuration) and the Customer(Customer Maintenance).

VAT ! VAT EC Sales List (V101)


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• Make any adjustments and click Submit to prepare.

See VAT Reporting and VAT100 / VAT101 (ECSL) returns section below for more information.The report can be accessed from the VAT menuVAT Reports View Saved EC Sales List Returns

c. Selling goods to other parts of the world (exports)

If you export goods to a customer outside the European Union, your supply is normally zero-rated,

provided certain conditions are met. If you are uncertain consult with your advisor.

d. Buying goods from EU suppliers

If you are VAT registered in the UK and receive goods (known as acquisitions) from another EU memberstate supplied from a VAT registered business in that state, you must account for VAT in the UK onacquisition of the goods as output tax. In addition and subject to the normal rules for deduction of inputtax, the same VAT amount is treated as input tax.The VAT rate applicable will be that which would apply to a UK supply of identical goods. So for exampleno tax will therefore be due on the acquisition of goods that are currently zero-rated in the UK.

To record VAT on an EU Acquisition• Enter a purchase transaction and fill out data as required


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• Enter in the net amount box the value of the acquisition• Select EU Acquisition for the VAT rate.• A VAT amount based upon the standard rate will be automatically calculated, if this in not the rate

that should apply calculate the correct VAT amount and overwrite with that amount.• The system will record both the output and input side impacts.

Note that if you are using the cash based scheme, the transaction will be recorded immediately (notwhen the bill is paid) consistent with Para. 4.3 of the notice 731 Cash Accounting.

e. Buying goods from other parts of the world (imports)

If you import goods from outside the EU, they must be cleared through Revenue and Customs At the pointof levying customs duty, Import VAT is charged. The VAT rate applied will be that which would apply to aUK supply of identical goods. Usually you will receive an Invoice from your supplier that will not show anyVAT. Your shipper will usually recharge you directly with the appropriate VAT.If however you have arranged with HM Revenue and Customs a deferment, they will collect the ImportVAT from you and send a C79 certificate. The C79 authorises you to record the Import VAT.

Note that under section 4.3 of VAT Notice 731 (Cash Accounting) the Cash accounting scheme must notbe used for imports. To comply with this notice we recommend cash accounting users record thesetransactions using a “cash” type transaction such as a cheque, card or online payment to ensure VATliability is recorded immediately, do not record using a Bill type transaction.You will have to enter the information as two transactions.

The first is to record the value of the import. Input the purchase transaction (See note above) and usezero rate VAT codeSecondly record theImport VAT rechargedfrom the shipper or theC79 payment Enter thetransaction using anyappropriate payment

transaction, such ascheque, card or onlinetransfer, selecting theaccount as the VATControl.This is a potentiallycomplex area and so westrongly advise youconsult with your advisor.


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f. Buying and selling services outside of the UK (Reverse Charge)

Supply and receipt of services inside the UK are dealt with as described above in recording of VAT.If however you supply or receive services from either EU member states or non-EU member states thereare complex rules dealing with where the supply of the service is actually performed. The VAT accounting

necessary will be dependant on the type of service it is.We strongly recommend you take advice from HMRC or your advisor. The VAT codes will allow you toaccount for VAT in the correct manner once the applicable rules have been confirmed.

Reverse Charge Procedure

Normally, if you are a VAT registered business in the UK and have received a service from a VATregistered supplier in a EU member state, the receiver of the service is the person who must account, tothe tax authorities, for any VAT due on the supply. This is known as reverse charge. The system providesa procedure for dealing with this.Another common situation where this can apply is the purchase of say software from the USA.

We strongly recommend you take advice from HMRC or your advisor to ensure that this is the correctVAT accounting required.

Additionally recent announcements from HMRC suggest that for certain goods (Mobile Phones, ComputerChips, Electronic Storage medium, Hand held computers and GPS systems etc) coming from a EuropeanVAT registered supplier must be treated under the Reverse Charge Procedure. Simply follow theprocedure described below.

The required impact is to add to the VAT control account an amount of output tax (as if a sale) calculatedon the full value of the supply received (or in the case of software the value paid), at the same time add(subject to the normal rules for deduction of input tax) the same amount of VAT as input tax to the VATcontrol account.The impact on VAT is zero; however it does affect the VAT100 return:

The system provides a specific feature to deal with any transaction impacted by reverse charge.• Enter the transaction normally and select a VAT rate that would apply if the purchase had taken

place from a UK supplier.• Then in the Analysis Tab simply check the box Reverse Charge VAT in the analysis tab. The

appropriate entries are made to the VAT100 report and any VAT transaction reports.


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• If the Transaction is subsequently viewed or edited, the displayed VAT rate will show “Out of Scope” . If you wish to amend the figures make sure you again use a relevant VAT rate and ensurethe Reverse Charge VAT box remains checked.

We repeat It is strongly recommended you take advice from HMRC or your advisor to ensure that this isthe correct VAT accounting required.

Special Situations – Flat rate and Flat rate cash based turnover method

a. Amending the Flat rate effectivity dates / Ending flat rate

The dates for which the flat rate scheme applies can be amended in Configure Flat rate(s)

VAT ! Configure Flat rate(s) Flat Rate Start or End Date

The impact of changing the dates is that all open VAT transactions (i.e. not yet included in a VAT return)will amended as appropriate.If before the date change the transaction was not caught as flat rate but now is, it will be adjusted to beflat rate and vice versa.If use of the Flat Rate Scheme is to be terminated an End Date for the last occurrence of a flat ratepercentage must be entered before the Flat Rate Box on the configuration screen is unticked. This isusually done at the end of a VAT period.


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b. Change of Flat rate percentageThe flat rate percentage can be amended in Configure Flat rate(s)VAT ! Configure Flat rate(s) Rate

The impact of changing the percentage is that all open VAT transactions (i.e. not yet included in a VATreturn) will amend as appropriate.

c. Cash Scheme and Miscellaneous Deposits

The Cash based scheme requires that Output tax be accounted for when the payment is received. Usuallya Sales Invoice will represent the VAT document and the process of applying a receipt will place theappropriate VAT amounts in the VAT return (VAT100). Where a user chooses to record a MiscellaneousDeposit directly onto a Sales Ledger account (for say a payment on account from the Customer) and notapply the deposit to a Sales Invoice (perhaps because the Invoice cannot yet be raised) and close theVAT period in this condition; any VAT would not be accounted forand therefore the business is potentially non-compliant.To allow flexibility as well as the ability to comply, a list of allcurrently unapplied Miscellaneous Deposits that have beenposted to Customer Accounts is available from the VAT menu.

It is recommended that this list be reviewed prior to accepting aVAT Return, see example below.

If a user does not wish to do anything, leave the screen and proceed to close the VAT period, if not, thelisting allows a user to define the VAT rate that they would wish to apply to any particular deposit asshown below: -


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When Submit is clicked a reversing VAT Journal is created for each item. It posts a VAT amountcomputed from the selected VAT code to a sub account of the VAT Control Account - VAT on ACCOUNT(Cash Scheme) . The VAT100 and the VAT transactions Reports will record the appropriate VAT andturnover amounts when the return is accepted for filing; also the initial journals are locked because theyare included in a closed VAT filing.Note the balance on the VAT on ACCOUNT (Cash Scheme) will normally be zero as the Journals arereversing.

When in the next or subsequent VAT periods the Miscellaneous Deposit is finally applied, the VAT will beprocessed as normally but because there is a reversed amount from the Journal the impact will be anadjusted amount If a different VAT rate is applied to the sales invoice or no further impact.

A user may cancel journalising unapplied deposits any time prior to accepting a VAT return, by going backto the unapplied listing, where the VAT codes will by default, be reset to Ignore Item and clicking Submitagain .

d. Selling goods and services to customers in the EU

Provided your EU customer is VAT registered and you have their VAT number and you indicate on thecustomer maintenance screen that you have validated it (See Customer Maintenance user guide for moreinformation) you are usually able to invoice with a zero rated VAT rate; If not, VAT at the appropriate rate

must be charged. A consequence of the Customer VAT number validation is that the system will default toa zero rate, but the user must satisfy themselves that this is appropriate. If you are unsure you are stronglyrecommended to take professional advice.Sales invoices will have text added for compliance purposes as follows.If the sales item is set as Goods and zero rated then “Includes zero rated intra-EC supply” is shown. Forother zero rated supplies the text is “may be subject to reverse charge in the country of receipt”. If a VATrate of exempt is selected then the text is “Includes exempt supply”.

In the case of an invoice to an EU customer designated in Euro (or other non sterling currency) the invoicewill display any VAT amount in both sterling and currency. Additionally where a business is using the flatrate cash based scheme the VAT will be recorded on the VAT 100 return when the invoice is created, not

when payment is received.

Part of the reporting procedure to HMRC, requires that a quarterly (can be monthly - see note in theSetting up for Recording Vat section above) EC sales list is submitted. Provided you have set up thedetails of VAT registration number and country of your EU customers, a list can be prepared via the VATmenu. Check to ensure that the country prefix code is set both for the entity (VAT configuration) and theCustomer (Customer Maintenance).VAT VAT EC Sales List (V101)

• Make any adjustments and click Submit to prepare.


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See VAT Reporting and VAT100 / VAT101 (ECSL) returns section below for more information.The report can be accessed from the VAT menuVAT ! Reports ! View Saved EC Sales List Returns

e. Selling goods to other parts of the world (Exports)

If you export goods to a customer outside the European Union, your supply is normally zero-rated,provided certain conditions are met. If you are uncertain consult with your advisor. The flat rate percentage will be applied to the VAT inclusive turnover just as for a UK sale, so even if thesupply is zero-rated the percentage will be applied and vat due. It may be that if the business has a higherproportion of this type of sale, the flat rate scheme may not be appropriate. We suggest you consult youradvisor.

f. Buying goods from EU suppliers

If you are VAT registered in the UK and receive goods (known as acquisitions) from another EU memberstate supplied from a VAT registered business in that state, you must account for VAT in the UK onacquisition of the goods as output tax. Unlike the other VAT schemes however, the flat rate scheme doesnot allow for the recovery as input tax. (VAT notice 733 Para 12.4)

The VAT rate applicable will be that which would apply to a UK supply of identical goods. So no tax willtherefore be due on the acquisition of goods that are currently zero-rated in the UK.

To record VAT on an EU Acquisition• Enter a purchase transaction and select a Date as required • Enter the net amount of the value of the acquisition• Select EU Acquisition for the VAT rate.• A VAT amount based upon the standard rate will be automatically calculated, if this in not the rate

that should apply calculate the correct VAT amount and overwrite with that amount.• The system will record the output tax side only.

g. Buying and selling services outside of the UK (Reverse Charge)

Supply and receipt of services inside the UK are dealt with as described above in recording of VAT.If however you supply or receive services from either EU member states or non-EU member states thereare complex rules dealing with where the supply of the service is actually performed. The VAT accountingnecessary will be dependant on the type of service it is. We strongly recommend you take advice fromHMRC or your advisor. The VAT codes will allow you to account for VAT in the correct manner once theapplicable rules have been confirmed.


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The Reverse Charge Procedure is not used under the Flat rate scheme.

VAT Reporting and VAT100 / VAT101 (ECSL) returns

Specific reports are available to help you prepare your VAT return, see below.

VAT Online Filing

If you have clicked the Use Online VAT Filing box then the VAT100 and EC Sales list can be sentelectronically directly from the system via the Government Gateway to HMRC. Please see the VAT OnlineFiling User Guide for more information.

VAT 100 Reports

A VAT 100 report format provides the basic information for completing the return to the Revenue andCustoms. In most cases there will not be any necessity to make any amendments to the figures.The report is accessed via the VAT menu

VAT VAT Return (VAT 100)

A report can be run at any time, but it only after a VAT period end date has passed that the opportunity toaccept (and therefore close the VAT period) will be available.

After the period end date the report will invite you to Accept the report as the final.The form will be populated with the data that system has available. In most cases this will be correct.However if adjustments are necessary, make them in the second column, a record of the amendment isthen retained for when the report is printed out again in the future, for instance at the time of a VATinspection.

Accepting the VAT100 means that the system rolls over to the next VAT accounting period, and all thetransactions included in the report are flagged as VAT reconciled.


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Finally the amount of the VAT due to or from Customs for the relevant VAT period is moved from the VATControl Account to the VAT Liability Account .

A copy of the report can be printed and It is possible to reverse the acceptance of the last report (only thelast report, prior reports are in a locked condition) via the VAT menu.


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VAT ! Reports ! View Saved VAT Return Reports ! View the VAT100VAT !

Reports ! View Saved VAT Return Reports ! Delete the Return

Deleting a VAT return re-sets the status of everything to the pre-acceptance condition.

Other than the VAT 100 Preparation activity (see above), all other VAT reports are available from the VAT! Reports menu.

The system defaults to the date range for the current VAT period, if you need a report for other periods orcovering multiple periods modify the dates as required and click generate.


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VAT101 (EC Sales List)EC Sales List is required quarterly (or monthly) if chargeable (subject to VAT, usually zero rated) supplieshave been made to customers in European Union Countries.

Provided you have set up the details of VAT registration number (and indicated that it has been validatedon the customer maintenance screen for the relevant customer) and country of your EU customers, a listcan be prepared and online filed via the VAT menu.

VAT VAT EC Sales List (V101)Details of the ECSL are presented for review; any necessary amendments to Type may be made. Click

Submit to prepare and file the report.

A copy of the report can be accessed from the VAT menuVAT ! Reports ! View Saved EC Sales List Returns

VAT Transactions Report

This report details all VAT transactions recordedby the system. The system defaults to the enddate of the current VAT period and selects

Current mode. The report will then display allVAT transactions for the current period: quarter,month or year depending on the configuration.

Clicking the Historic Mode box will allow theselection of reports consistent with previousclosed VAT periods from the drop down box.Each will report will show those transactionsincluded in a VAT 100 return by the system.

Transactions that were corrections (such as a

late entry) will appear in the report of the period


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in which they were included in a VAT 100 even though dated in a different VAT period.The All Trading Up To option, which will require the user to enter a valid VAT period end date, is a reportthat will display allVAT relevant transactions from commencing using the system up to and including the selected date. Ineffect a history of all entries to the VAT control Account, not necessarily what has been reported onVAT100 returns if the entity is using the cash scheme.

pauljt Consulting Ltd -TRIALVAT Transaction Report

For the VAT period ending January 31, 2013

VAT VATType Tax Point Reference Name Memo Code Rate VAT Amount Net Amount VAT 100

28/02/2013 Page 1

Outputs

Invoice 11/12/2012 00010354 Earth Technology PLC S3 0.200 5,000.00 01/2013S3 0.200 400.00 01/20131,080.00 01/2013

Invoice 21/12/2012 00010355 Venus Management Ltd S3 0.200 2,000.00 01/2013S3 0.200 365.00 01/2013

473.00 01/2013

Total Outputs for VAT period ending 01/2013 1,553.00 7,765.00

InputsBill 06/12/2012 457245 Office Products Ltd Laser Printer S3 0.200 (1,700.00) 01/2013

Laser Printer (340.00) 01/2013Debit Card 14/12/2012 Central Garages Ltd Fuel on Account S3 0.200 (210.00) 01/2013

(42.00) 01/2013Bill 16/12/2012 457256 Office Products Ltd ZR (145.00) 01/2013Bill 21/12/2012 004879 Phone Company PLC S3 0.200 (245.00) 01/2013

(49.00) 01/2013Debit Card 23/12/2012 The Restaurant Lunch - Andrew White S3 0.200 (56.00) 01/2013

Lunch - Andrew White (11.20) 01/2013Imputed Non-Recoverable VAT 11.20 01/2013

Bill 28/12/2012 823744 Central Garages Ltd S3 0.200 (350.00) 01/2013(70.00) 01/2013

Credit Note 05/01/2013 823862 Central Garages Ltd S3 0.200 94.68 01/201318.94 01/2013

Expense Claim 25/01/2013 Huntrose, Sandra S3 0.200 (141.92) 01/2013(28.38) 01/2013

Expense Claim 31/01/2013 Jan 13 Huntrose, Richard january 2013 Expenses S3 0.200 (100.00) 01/2013 january 2013 Expenses S3 0.200 (108.33) 01/2013 january 2013 Expenses EX (25.00) 01/2013 january 2013 Expenses (41.67) 01/2013

Total Inputs for VAT period ending 01/2013 (552.11) (2,986.57)

Total Outputs 1,553.00 7,765.00Total Inputs (552.11) (2,986.57)

Total VAT Owed/(Due) 1,000.89 4,778.43


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Transactions by VAT Code Report

This report is similar is the transaction report, except that transactions are shown under the VAT codeused. It is useful for reviewing accuracy of VAT recording and the nature of VAT transactions undertakenby the enterprise, i.e. how much of the business is exempt trading.

a. Annual Accounting Scheme

If you are using the Annual Accounting Scheme you will have made instalment payments. You will need toenter on the VAT100 any balancing payment amount required to fulfil the actual liability.

If you choose to pay your VAT by nine monthly instalments, each payment will be 10 per cent of the totalamount of VAT you paid to HMRC in the previous year, or 10 per cent of the estimated total annual


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amount of VAT due to HMRC if you have been registered for VAT for less than 12 months. Your paymentswill be due by the end of months 4 to 12 of your annual accounting year. If you choose to pay your VAT bythree quarterly instalments, each payment will be 25 per cent of your previous year's VAT liability, or 25per cent of your estimated VAT liability if you have been registered for VAT for less than 12 months. Yourpayments will be due by the end of months 4, 7 and 10 of your annual accounting year. The balance ofyour actual VAT payable for your annual accounting year, based upon the VAT Return that you completeat the end of the year, is due two months after the end of your annual accounting year.Annual returns are completed in exactly the same way as quarterly returns, except that after calculatingthe annual VAT payment due, you deduct the interim payments you have already made to arrive at yourend-of-year balancing payment due to you or HMRC.

Completing the VAT return and paying any VAT Liability

• Run the VAT 100 report, VAT transactions reports and EC Sales lists report (if necessary)• Satisfy your-self that all information is correct.• Transfer the data from the VAT 100 report to your VAT return.• Prepare a payment transaction for the liability.•

Ensure that the account is the VAT Liability Account and the amount to be paid is shown in the Netfield.

• Select Out of Scope as the VAT code. The VAT field must be zero, because the payment of VAThas no impact on the VAT itself.

The use of online filing of VAT returns is efficient and saves time, it can also reduce the possibility oferrors, and we commend it to you. It is quick and easy to set up, see the Online VAT filing user guide forfull details.

VAT Refunds

If you receive a VAT refund from HMRC use a miscellaneous deposit transaction. See MiscellaneousDeposits user guide. Select the VAT Liability Account as the account.


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Dealing with a VAT Tax Inspection

VAT Inspectors may request a visit to inspect your business records, methods and premises. Revenue andCustoms make it clear in their documentation that those businesses that send in late or incorrectdeclarations can expect more frequent visits.

In the event of a visit, it is advisable to have all original invoice documents readily to hand as well as bankstatements. Prepare reports including VAT transactions and Transactions by VAT code. We advise also to have on hand daily transaction reports for the periods under review; accessed via theReports menu.Reports Day Books

• Sales day Book• Purchase Ledger Day Book• Bank Receipts Day Book• Bank/Credit Card Payments Day Book

In addition, reports are available detailing all transactions recorded between any dates. Also reports of alltransactions for a particular account or group of accounts can be run. These are available from theReports menu

See Preparing Reports user guide.

Specialised VAT Transactions

a. Disallowable VAT such as entertainment expenses

For certain purchase transactions the VAT is not allowed to be reclaimed as input tax. The most commonone is Client Entertainment expenses.In the case of Flat rate schemes there is no impact as no input tax is being recorded in the first place.

Dealing with client entertainment expenses

The system is pre-set to make the VAT on client entertainment expenses non recoverableEnter the transaction in the normal way including the amount of VAT you have been charged.

• Enter the VAT as the net amount• Save Item , the transaction now shows the gross amount and VAT amount, Submit the transaction.• The system will automatically properly deal with the non-recoverable VAT.


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The cost of the VAT disallowed is recorded in the profit and loss report as Non-recoverable VAT. In theVAT control account and the VAT 100 report (and VAT Transaction report) the net value is shown as thevalue of supplies received but no input VAT is recovered.

Dealing with other items that need to be disallowed

Enter and Submit a purchase transaction in the normal way. The disallowable amount of VAT will need tobe adjusted in the VAT control account. Use a journal entry to do this.

The adjustment amount is entered as a Journal Entry , accessed via the Entity Name menu.

Entity Name ! Journal Entry ! Journal Tab

The example shows a disallowable amount of £2.00, posted to the VAT control account and charged tothe non-recoverable VAT account as an expense. Note that the VAT input (e.g. Expense) button isselected so that the VAT 100 return correctly displays the adjustment.

More information on using journal entry transactions can be found in the Using Journal Entry user guide.

b. Dealing with Fuel scale charges (fuel provided for company vehicles)

If your business provides fuel both for private and business use, and you claim the input tax as adeduction, HMRC require you to use a fuel scale charge to account for some output tax. The scale chargeis published periodically by Revenue and Customs. If necessary we suggest using a spread sheet to


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prepare the charge for each VAT Period. Calculate the VAT amount due from the relevant scale and thenumber of Vehicles.

Note that for Flat rate scheme users no adjustment is necessary or allowed because no vat on fuelpurchases has been claimed as input tax.

Details of the scale charges, which are usually modified at each budget, are available from the HMRC website. The scales relate to annual, quarterly and monthly VAT accounting periods.

The VAT amount is entered as a Journal Entry , accessed via the Entity Name menu.


• We suggest that the Memo field holds a relevant comment such as “VAT fuel scale charge”

• Ensure that the VAT Output (e.g. Income) button is selected because the impact is to increase theVAT liability to HMRC.

• Enter the VAT amount as a credit to the VAT control account . Then also as a credit enter the VATexclusive amount (net) to a expense account (in this example Vehicle – fuel and oil), also set the vatrate and the vat amount in the memo fields (this will ensure that the VAT exclusive amount isincluded in the VAT100 return correctly in box 6


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• Finally enter a debit to the same expense account above ((in this example Vehicle – fuel and oil) forthe VAT inclusive fuel scale charge.

• Click Submit to confirm and record.


c. Making a VAT Partial Exemption Adjustment

If your business is registered for VAT and makes exempt supplies, an adjustment may be necessary toreduce the amount of input tax that can be recovered.

We recommend that you consult with HMRC or your advisor before making any adjustments.To record the exempt input tax, use a journal entry to make the adjustment.


The

example shows an adjustment amount of £10,200, posted to the VAT control account and charged to thenon-recoverable VAT account as an expense. Note that the VAT input (e.g. Expense) button is selectedso that the VAT 100 return correctly displays the adjustment.



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d. Dealing with Late Invoices

Occasionally you may receive a suppliers’ invoice which should have been included in a prior VAT period.Simply enter the transaction as usual; making sure that it is dated at the tax point date (not today’s date).The system will include the figure in the next VAT return.

e. Dealing with errors and omissions

We recommend that you consult with your advisor when dealing with any error, omission or bad debtsissues before submitting your VAT return.

Using a Journal Entry directly to the VAT control account can make adjustments. The process is similar tothat for making partial exemption adjustments.

f. Bad Debts

For bad debts, various rules can apply depending on your vat scheme.

Standard scheme

Provided you have:• Already accounted for and paid VAT over to HMRC• Written off the debt in your accounts• Six months have elapsed from the due date.

You can reclaim the VAT already paid. The actual vat recovery can be achieved by clicking the red

WRITE-OFF box adjacent to the relevant invoice in the receive payments screen. The system will post theappropriate entries to recover the VAT.

Activities Receive Payments

Cash Basis scheme

As by definition the debt remains unpaid no VAT has been paid to HMRC and so that there is no VAT toreclaim.

Flat rate SchemeProvided you have:


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• Already accounted for and paid VAT over to HMRC• Written off the debt in your accounts• Six months have elapsed from the due date.

You can reclaim the VAT already paid. The actual vat recovery can be achieved by clicking the red Write-Of box adjacent to the relevant invoice in the receive payments screen. The system will post theappropriate entries to recover the VAT.

Activities Receive Payment

Flat Rate Scheme – cash Based Turnover

As by definition the debt remains unpaid no VAT has been paid to HMRC and so that there is no VAT toreclaim.

g. If you incur VAT on other parts of the EU

EU VAT is VAT incurred in an EU member state.If you are registered for VAT and you buy goods and services in another member state you may have topay VAT there. This need not happen if you buy goods for removal to the UK (an acquisition), but it may

apply if what you buy is used there, for example if you take part in an exhibition or trade fair.It is not possible to recover VAT paid in another member state as input tax on your VAT return. You maybe able to recover it using a scheme known as “Refunds of VAT in the European Community for EC andnon-EC businesses”. The details are in Revenue and Customs notice 723.We suggest you consult either this notice or your advisor for further advice.However two situations can result, the first is that the VAT is recoverable, and the accounting has to dealwith this. The second is that the VAT cannot be recovered (Usually hotel and subsistence expenses arenot recoverable).

Accounting where the EU VAT is recoverable

• Select a normal purchase transaction such as Bill/Credit Note or Card Transaction from the Activities menu.

• Enter the gross amount including the VAT element (in the net field) against the relevant expenseaccount and select EU VAT code. Do not enter any VAT amount in the VAT field; Save Item

• Add Item for a new line and select EC VAT recoverable account from the Current Assets - Other section of the chart of accounts.


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• Note if the account does not exist, see Chart of Accounts user guide about adding a standardaccount to open the account.

• Enter the EU VAT amount in the net field, select vat code EU VAT . Do not enter any VAT in the VATfield; Save Item.

• Add Item for a new line and select Foreign VAT recoverable account from the Other Expenses section of the chart of accounts. Enter the EU VAT amount as a negative item; select EU VAT as thecode and no VAT in the VAT field; Save Item.

• Submit transaction to complete.• The profit and loss report will show the full cost (EU VAT included) against the expense account.

The amount recoverable is shown as a negative Other Expense. The Balance sheet shows theamount as a Current Asset –Other until the cash is received.

• The VAT 100 report will show the purchase value including the EC VAT in boxes 6 and 9, becausethe EC VAT is out of scope for UK VAT purposes.

• When the cash is received from the EU member state, use Miscellaneous deposit to post the cash. •

Accounting where the EU vat is non recoverable

• Select a normal purchase transaction, Enter Bill/Credit Note or Enter Card Transaction from the Activities menu.


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• Enter the net amount excluding the VAT element (in the net field) against the relevant expenseaccount and select EU VAT code. Do not enter any VAT amount in the VAT field.

• Add Item for a new line and select Foreign Non-recoverable VAT account from the OtherExpenses section of the chart of accounts. Enter the EU VAT amount in the net field, select EU VAT as the code and no vat in the VAT field; Save Item.

• Note if the account does not exist, see Chart of Accounts user guide about adding a standardaccount to open the account.

• Submit t ransaction to complete.

The profit and loss report will show the VAT exclusive cost against the expense account. The amount notrecoverable is shown as an Other Expense . The VAT 100 report will show the purchase value includingthe EU VAT in boxes 6 and 9, because the EC VAT is out of scope for UK VAT purposes.

Documents

Vat and Liberty Accounts