Creating VAT return after switching to accrual accounting

Accounting
1

When I created the VAT return this month and exported it, I noticed it had registered both the VAT from invoices and attributed sales VAT to the payments that came into the account - the VAT for these invoices was already picked up in previous VAT returns.

I’ve not changed anything but looks like my settings are now “cash accounting” in VAT settings. We are Ltd so should be accrual accounting but when I changed the setting and tried to create a return for March again, it pulled through every sales & purchase made since I started Quickfiles.

I’m at a bit of a loss

2

Hello @oaks

I checked the account linked to your email and all of your previous returns have been made as cash accounting.

I changed it back to vat cash to take a look at the return.

I can see the payment entries made were related to a previous prepayment which has now been allocated to invoices. Under cash accounting, when the prepayment was originally made, it would have been a gross amount reported as there were no invoices to show the net/vat split. This return is now taking into account the allocations and reporting the correct net vat splits to HMRC.

3

Hi Steve,

Thank you for that, so to confirm - I can now keep it toggled to accrual accounting and submit the return as it’s actually now giving correct net/vat splits? We do quite a lot of reverse VAT work or 5% VAT work

4

Hello @oaks

Thank you for that, so to confirm - I can now keep it toggled to accrual accounting

As I said you have been submitting your returns under vat cash. The vat cash return looks correct.

If you wish to switch to Accrual, change it in the settings but you may need to do manual adjustments to the figures on the first return.

If you need help with the adjustments, I would reccomend speaking to your accountant as the support team are not registered accountants.

5

Hi Steve,

Sorry, I’m with you now. I’ve changed it but will manually adjust this submission & check future ones for duplication

6

Hi Steve,

I made the manual adjustments with notes added, but it filed the original submission. I can still see the manual adjustments but the original numbers have been filed with HMRC?

7

Hello @oaks

The return is showing as “Filed” in your Reports > Vat Returns > Create screen and there is a HMRC ID on the rolled back return.

You can not re submit a filed return but you have to save a copy as to not impact the next return.

To do this

  • Go into Report > Vat Returns > Settings
  • Set the HMRC account to “No electronic filing” > Save
  • Go into Report > Vat Returns > Create >
  • Enter the period > Make sure the figures are correct as per what was submitted > Submit (this will save a copy of the return as a placeholder)
  • Go back into Report > Vat Returns > Settings
  • Set the HMRC account back to your company > Save
8

This is the fundamental misunderstanding here - being a limited company does not automatically mean you can’t use cash accounting for VAT. The VAT cash accounting scheme is open to any VAT registered legal entity (sole trader, partnership or limited company) turning over less than £1.35 million a year, unless they’ve committed a VAT offence in the last 12 months.

Limited companies have to prepare their company accounts on an accrual basis, but this has no bearing on which accounting scheme they can choose for VAT specifically. The choice of cash vs “traditional accounting” (what QuickFile calls “accrual”) for VAT is largely based on the nature of your business.

  • If you grant long credit terms to your customers and don’t take long credit terms from your suppliers then you’re probably better off on cash accounting since you don’t have to pay the VAT from your sales over to HMRC until after your customers have paid you.
  • Conversely, if your customers pay up front but you take credit from your suppliers then you’re better off on traditional accounting since that means you can claim back the purchase VAT on your inputs as soon as the supplier invoices you, you don’t have to wait until after you’ve paid them.