VAT showing on Unallocated payments

We pay our Accountant in advance as pre-payment. When the payment shows in the banking I tag it as an unallocated payment. I have just completed a VAT return and the VAT is showing in the pre-payments for 3 out of 4 payments and we should not be claiming VAT on this. Can you tell me why the VAT shows on the report but does not appear in the payments made? Thank you.

Hi @eftlizzie

Are you on cash accounting?

If so, with the cash accounting scheme, VAT has to be paid/reclaimed at the time of the payment, not at the time of the invoice.

Sorry but how do I know if I am cash accounting?

This would normally have been decided when you first become VAT registered (this is a choice rather than you being told by HMRC, providing you meet the criteria).

To check your QuickFile account, there are 2 ways:

  1. Go to Reports >> VAT Returns >> VAT Settings:

  2. Go to a VAT return (Reports >> VAT Returns >> View a return, or start a new one). This will then be shown in the grey bar at the top of the return itself.

The general difference is, with cash accounting you pay VAT on your payments rather than your invoices, and accrual is where you pay VAT on your invoices rather than your payments.

Thank you I now know that we are Cash Accounting.

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