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End of Year VAT Liability

Hi All,

Apologies if this has been covered elsewhere (and for what seems like it must be a really basic question), but I couldn’t see an obvious answer in previous threads…

I just started using Quickfile last year, but have so far continued filing my (flat-rate) VAT returns outside of Quickfile, as I did previously. Before Quickfile I just used various spreadsheets for my accounting, so manually entering opening balances when transferring to Quickfile. For the VAT returns I used Quickfile to do a quick check of the required numbers, but just filed the actual return myself through the HMRC website (there has been a bit of a transition period from my previous spreadsheet “systems”, and I didn’t want to lock any parts of my accounts while I was still getting everything up to date).

However, I am just trying to finalise my 2020 year-end accounts (due on Thursday!) and no VAT liability is showing up on my trial balance, or chart of accounts etc. I have three quarterly VAT payments tagged from my bank statement however, so my VAT account is actually showing as in credit (i.e. I’m owed a refund according to Quickfile, which is not the case!).

I had an opening balance VAT liability at the start of 2020, which is entered. Do I need to actually create each VAT return in Quickfile for the numbers to show up in the correct place, even if not submitting them through Quickfile?

If so, how will my VAT liability at the end of 2020 be calculated and added to the trial balance, as the VAT return for that VAT owed was not completed until Feb 2020? (Accounting year end - 31st Dec 2020, VAT Period end 31st Jan 2021, so at the end of 2020 I owed some VAT but hadn’t yet completed the return).

Many thanks in advance for any help!

Hi, Yes you will need to generate the vat returns in quickfile or at least journals for them for the figures in your VAT liability to be correct

Hi, thanks for the quick reply.

So, I have created the VAT returns covering the full year, and that has left me with a VAT Liability of zero at the year end, and a Sales Tax Control Account balance of the equivalent of 20% VAT on the Nov/Dec 20 invoices.

However, this still isn’t really accurate. At year-end (i.e. end Dec 20) I had received payment for various invoices in the VAT period Nov20 - Jan21, but hadn’t yet completed the return or paid that VAT owing. The VAT owed at this point was not however 20% of the invoices, but the 16.5% flat rate, so the Sales Tax Control Account (which appears to be taking the 20% figures from the invoices) is too high compared to what I actually owed, until the relevant VAT return is completed and the flat rate adjustment journals are created?

Yes. When you do a flat rate vat return in QuickFile it will journal the full 20%-of-net (= 16.67%-of-gross) off the sales tax control account and calculate and journal the 16.5%-of-gross to VAT liability. The difference between the two (0.17% of gross) goes to the flat rate sales adjustment nominal which increases your turnover in P&L.

If you’re not running the return in QuickFile you’d need to do the same calculation yourself and manually create an equivalent journal.

So I have now run the VAT returns in Quickfile so those numbers are now correct, but that still leaves an error in the end of year figures, since they fall in the middle of a VAT period.

How should you handle the end of year accounts when they fall in the middle of a VAT period like this as, since the VAT return flat rate adjustment hasn’t yet happened, my turnover and sales tax control account aren’t correct at the point of the end of year figures (admittedly not by much, but still)…

Am I supposed to do a manual flat-rate VAT adjustment (not as part of a VAT return) before running my end of year accounts? But if I do that, would I not then need to reverse it afterwards in order for my next VAT return to be correct (or just to avoid making the same adjustment twice)?

Or do I just ignore the incorrect numbers, since the difference is small?

Hi @Claire_F

This may be something you are best to ask your accountant to make sure that you are reporting the figures correctly

You can ask HMRC to change your VAT periods so your year end matches the end of a quarter. I did that a few years ago and the problem then goes away. They can’t backdate it so it works going forward by asking you for a shorter (1 or 2 month) VAT return “once off” so they line up afterwards.
You will see boxes relating to it on the VAT484 form for changes:

In the meantime, you could calculate the VAT you would owe at the end of your financial year and put a journal in for it.

  • debit sales tax control for the 20% net on the relevant invoices
  • credit VAT liability for the calculated flat rate liability
  • credit flat rate adjustment for the difference

Date the journal on the last day of your accounting period and set it to auto-reverse the following day (at the start of the next period) to put everything back where it belongs before the next VAT journal.

Thanks so much @ian_roberts and @eglesb for the really helpful responses - all sorted now. I did indeed create an auto-reversing journal for the VAT, and have also submitted a request to change my VAT dates for the next period, to avoid this problem next year! Thanks again.

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