Would anyone know where to start looking if you are told there is a discrepancy in VAT when it comes to completing the end of year tax calculations? All VAT returns have been submitted on Quickfile so I am trying to understand where a discrepancy might arise. If it helps a figure has been added to the sale figure as a result (which confuses me as if it was VAT then it wasn’t a sale and I have no invoice for it). Any pointers appreciated.
Discrepancy between what? If you mean there’s a residual balance in the control accounts after completing your last return of the year, that’s probably either because you’re on cash accounting and some invoices remain unpaid at the year end (since the control accounts are accrual based even if the returns are cash based), or you made a back dated entry for the last period of the year after submitting the relevant return (such an entry will sit on the control account until it is reconciled in the next return).
Thanks @ian_roberts . Afraid I am not clear myself as it was not explained. Yes the company is set to cash accounting for vat so perhaps this could be a reason but I am in the dark. From what I can tell there was £400 odd outstanding on VAT at the end of the financial year but £200 is being added to sales so it doesn’t add up to me. I will post back if I get a response asking for a better explanation. Thank you for commenting.
Are you on Flat Rate by any chance?
So when you create an invoice QuickFile puts the net amount as a credit on the sales code(s) and the VAT amount as a credit on the sales tax control account, on the date of the invoice. When you create a VAT return it moves the VAT amount for the sales covered by that return from the sales tax control account (debit) to the “VAT liability” account (credit).
Under normal VAT (not Flat Rate) it does a similar thing for purchases, whereby creating a purchase puts the net as a debit on the expense code and the VAT as a debit on the purchase tax control account, and the return process moves the appropriate VAT amount from purchase tax control (credit) to VAT liability (debit). The overall VAT liability calculated when you submit a return is the difference between the sales VAT you collected and the purchase VAT you paid out to suppliers.
If you are on the Flat Rate scheme then it’s slightly different, in that case you only record VAT on your sales, not your purchases. Your invoices are still expressed as net plus 20% VAT, and at the invoice date the nominal postings are the same as above - the net to the sales code and the VAT to the control account. The difference is how the liability is calculated when you submit a return - in this case it’s your flat rate percentage times the gross sales figure including VAT, which will be less than the 20%-of-net (= 16.67% of gross) that is sitting on the sales tax control account. So to straighten everything out the VAT journal debits the control account with the full 20%-of-net VAT amount, credits VAT liability with the (lower) flat rate calculated liability, and posts the difference as a credit to the “flat rate adjustment” nominal code in the sales section. This adjustment will show as if it has been “added to sales” on your profit & loss report.
No - not using flat rate (only cash accounting is selected - but I think I will change this soon as I think it makes more sense to simply use accrual accounting)
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