Tagging money in - why do I need to declare VAT?

[sri]

Hi,
I am doing bank feed tagging for book keeping, I always wonder why I need to input VAT as well while tagging to client account. We declare VAT separately with sales invoice any way why we need to input VAT while tagging to client account. Does’n it mess VAT declaration being done both places?

[ian_roberts]

tl;dr: It’s necessary to handle pre-payments.

When you receive a prepayment from a customer the VAT is due to HMRC in the quarter that includes the date of payment, even if the payment has not yet been allocated to an invoice (this is definitely the case on cash accounting but I believe the rule is the same even on accrual accounting). As such, QuickFile needs to know how to estimate the VAT on payments for which it does not have an invoice specifying the amount exactly.

When you enter an unallocated payment you tell QuickFile what VAT rate you expect to use on the eventual invoice(s) that this payment will be assigned to. When you come to submit a VAT return:

• if the payment has been allocated to an invoice then it just uses the VAT amount specified on the invoice
• if the payment is still unallocated (or only partly allocated) then QuickFile will estimate the VAT based on the rate you specified when tagging the payment (e.g. if you’ve said 20% then QuickFile will treat one-sixth of the unallocated amount as VAT).

When you do eventually assign the payment to an invoice then at that point QuickFile knows the exact VAT amount for that payment, and if this differs from the previous estimate then it will make the adjustment automatically on the next return. So if you have a payment of £120 that was originally recorded as 20% VAT and it was reported to HMRC as VAT of £20, then you later assign it to an invoice that only has £10 of VAT (maybe it’s two lines, one £50 at 20% VAT and one £60 at 0%), your next VAT return will reduce the box 1 total by £10 to compensate.