I’ve been using QuickFile for some time to submit VAT returns. I was preparing the latest return and thought that the amount of reclaimed VAT was wrong. I manually added up the VAT on every purchase invoice and found a big difference to what QuickFile calculated on my VAT return.
Quick file says I have £4007.44 to reclaim, but my manual adding up shows £5086.74 of reclaimable VAT. What’s going wrong? Ive tried and tried to figure it out, but cannot work out why there is over £1000 of difference. Hence making my VAT liability much higher than what I think it should be. Also worrying is that this may have happened on previous VAT returns, where I have just used the figures generated by QuickFile!
Does anyone have any idea please? Thanks in advance for any ideas.
Are you on cash accounting by any chance?
The “export” button on your QuickFile VAT return will show you exactly what has been included - on accrual accounting these will be sales invoices and purchases, but on cash accounting they will be the payments. This is because on cash accounting it’s the payment date rather than the invoice date that decides which quarter a particular item belongs to. Cash accounting means you only have to pay over your sales VAT once your customers have paid you, but conversely you are only allowed to reclaim purchase VAT once you have paid your suppliers.
Thank you very much for your reply. After I posted this question yesterday, I noticed that the VAT return sheet says CASH ACCOUNTING at the top and thought it may be something to do with this. So I would say you are correct. There are some invoices which were for the 30 March (my VAT period ended on that day), but payment by direct debit was on the 6th April. So for VAT purposes I suppose they wouldn’t show until the next VAT period. But which Tax year would they fall into?
What confused me was that when I generate a profit and loss report, the invoices in question are shown there, but not on the VAT return!
Is there a way to change the VAT return to accrual accounting as opposed to cash please?
The P&L report is always generated on accruals basis using the invoice dates, so it is normal for the numbers to be different from a cash accounting VAT return. The quarter when you report something for VAT and the accounting period when you report the same thing for SA or corporation tax can be (and often are) different.
You are certainly allowed to switch from cash to accrual accounting for VAT if you want to, though the changeover process is a bit fiddly. First be sure that you do definitely want to make the change - yes, accrual accounting means you can claim back some purchase VAT earlier than you would on cash accounting, but also it means that you have to settle your sales VAT in the quarter where you issue the invoice, even if the customer has not yet paid you. Which scheme works better from a cash flow perspective depends on the nature of your business - when I was VAT registered I was a retailer, so all my sales were paid up front but I took anything up to a month to pay my suppliers, therefore accrual accounting made more sense for me. If you’re a business that gives extended credit to your customers then cash accounting may be better anyway.
If you do decide to change then (a) it would be from your next return onwards - you can’t retrospectively change scheme on a return you have already submitted - and (b) there will be a lot of manual calculations and adjustments to make to your first accrual return to make sure everything has been accounted for exactly once, nothing missed and nothing double-counted.
Thank you very much again. It’s all making sense now.
Remember that the VAT never affects your P&L; the P&L report only deals with the net values, the VAT goes onto your balance sheet. Sales VAT is a liability from you to HMRC, purchase VAT is an asset because it is money that HMRC owes you, when you do a VAT return the relevant chunks of those two are offset against each other and the difference is what you owe HMRC (or they owe you, if your purchases are more than your sales).
Hi again. I should have set up the VAT on accrual accounting as I don’t invoice anyone, its all paid as bought (a pub).
So I changed the VAT settings to accrual accounting, but now the VAT return shows a massive liability. I have found out that the correct dates for the VAT return are shown at the top of the return. But when I press the export button, it shows liabilities going all the way back to the first VAT return I used QuickFile for in 2021. So I tried to change the date on the VAT return settings to a starting date of 01/01/2023 but a warning flashes up. Im afraid to proceed incase I mess it up even more! So I’ve put it back to CASH accounting for now. Any idea what Im missing please?
Sadly it is very tricky to switch accounting methods in QuickFile. The root of the problem is that when preparing a VAT return QuickFile (by design) doesn’t consider the start date of the quarter - it includes any entries dated before the end of the quarter you’re filing that are not locked by a previous return. Normally this is a good thing because it means anything that you enter late will be picked up at the first available opportunity, but when switching accounting methods you get the issue you’re seeing.
Cash accounting VAT returns lock the payments, accrual returns lock the invoices, so your first accrual return is seeing no invoices locked and thus including them all back to your original VAT start date.
Fundamentally what you need to include in your first accrual return is (assuming from your previous messages that this will be the quarter 1st Jan to 31st March):
- box 1
- all sales invoices raised since 1st Jan
- plus any sales invoices raised on or before 31st December but paid 1st Jan or later
- minus the VAT element of any pre-payments that were received up to 31st December for sales not invoiced until January
(This is easy if all your sales are retail, as 2 and 3 will be zero)
- box 4
- all purchase invoices raised since 1st Jan
- plus any purchases invoiced up to 31st Dec but only paid 1st Jan or later
- minus any VAT you’ve already accounted for under cash accounting on purchases where the supplier invoiced you 1st Jan or later
If you do set your VAT start date to 1st Jan then this should automatically calculate part 1 for both sales and purchases. You will then need to manually work out the right numbers for 2 and 3, net them off and apply that as a manual adjustment to box 4 (and 7 for the corresponding net).
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