Switching from Accrual VAT to Cash VAT accounting

Can anyone help provide some steps on what I would need to do to change from Accrual to cash accounting? I understand there are adjustments to be made but have no idea how to get the reports to show me what I need to know to get to the correct numbers. I would guess I need to make a report for Inputs and Outputs up to the date before the vat period I am going to submit? Any guidance appreciated.

Accrual accounting calculates VAT from invoices and cash accounting uses payments to determine VAT liability. What will happen is that when you switch to cash accounting, the system will bring in all payments from the VAT start date, this is likely to result in an incorrect calculation.

Here’s what you can do:

  1. Note down the totals from box 1-9 on the existing accrual return (I see you only have one), then roll back this return. Now switch to cash accounting and create a new return matching the dates of the previously deleted Accrual return and then enter the second return for the next 3 months. Basically what you want to do is adjust out the figures within boxes 1-9 on the old accrual return from the totals of the two new cash returns. When you submit the new cash accounting return to HMRC use the adjustment boxes to enter the relevant adjustments from your calculation.

Make sure to keep a record of your calculations should you need to present these to HMRC at any time.

Hi Glenn,
Thanks for the reply. I don’t see the rollback option, sorry to be dumb but I am going to reports - vat returns - click on the ‘view’ option for the previously submitted return and expect it to be available here?

Also when you say adjust the totals you mean once I have created both cash accounting returns I want to adjust the first of the 2 returns so that the figures match what I made a note of boxes 1-9 before starting the process? That I guess then changes the figures to be submitted for the current period (to effectively refund me the vat on invoices which are still not paid up)?

Thanks in advance.

Oh, there’s no rollback option as the return was filed to HMRC electronically. As a precaution this option is removed, we will try to roll this back for you.

Not quite… once rolled back you create two cash accounting returns and total the figures for both returns from boxes 1-9. Now deduct figures 1-9 from the accrual return, this leaves you with the balance to pay on the basis that both returns from were cash. You need to then adjust the figures in the second return accordingly to account for any balance.

Glenn’s correct, although if you have already submitted your VAT return to HMRC and change accounting method in the next quarter, you have 2 options:

Option 1: Adjust your VAT Return:

You can correct certain errors whose net value is below the error correction reporting threshold by adjusting your VAT Return. What you do next depends on whether the net value of the errors is greater than the error correction reporting threshold. This is the greater of:

  • £10,000
  • 1 per cent of the box 6 figure on your VAT Return for the period when you discover the error - subject to an upper limit of £50,000

You can correct certain errors whose net value is below the error correction reporting threshold by adjusting your next VAT Return as Glenn indicated.

You can also tell HMRC, in writing, the simplest way is to use form VAT 652 ‘Notification of Errors in VAT Returns’, but you can include the details in a letter instead.

Option 2: Manually Adjust Each VAT Return:

Alternatively, from the backing schedule highlight all unpaid sales and purchase invoices included in the accrual accounting VAT return. When you prepare each following Quarter’s VAT return, adjust out the sales and purchase invoices paid and included in this quarter’s return, as the VAT has already been accounting for in the previous accrual accounting VAT return.

Thanks Glenn (and Joe). I think the best option for me would be to roll back and sort it out once if I can. To add matters worse I am planning to switch to flat rate VAT so would like to be clear on cash accounting before that happens. Are you able to roll back for me or unlock it so I could do it? To re-create the first submission I guess I will need to un-check allow online submission so it is only recorded locally and the period is locked, then prepare the second return with adjustments, turn online submission back on and submit it all? I am hoping to recover about £3k in VAT which I have already paid in (but not yet received from customers), but I will not know the exact figure until I can rollback and recalculate it.

I have rolled back the VAT return for 01/03/2013 - 31/05/2013. I will PM you the backing report for this return so you can use these figures for the basis of any adjustment. I have also disable online filing, you can re-enable this once you are ready to file your second VAT return.

Going from cash accounting to flat rate scheme shouldn’t be much of a problem as they are both cash based methods of accounting. Accrual to cash is always tricky!

Hi Glenn,
Thanks for that and sorry to be back again but I am just trying to think this one through. The problem really is that I have these ageing debts and taking an overview of some invoices I see that payments received in September still cover invoices which were raised even earlier than the period we have rolled back to (invoices raised in Feb or perhaps earlier). This means I really need to roll back further but I cannot as it is when I switched onto quickfile. Is there any way I can get reports to tell me what was outstanding at a given date on quickfile? This would help me determine what had or had not been paid. I would need to exclude the payments received in both recent periods as they would have been accounted for before 01 March 2013. I would be happy to pay for support to help me get this resolved. To me this is a BIG headache!

There is a report called Historical Debtor and Creditor Invoice Report. You can find this in the reports section. This will show you what was outstanding at a given point in time for both debtors and creditors. At the moment I’m afraid we’re not taking on any consultancy work, we have our hands full with year-end work right now.

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