Starting VAT figure: mid-quarter (not Flat Rate Scheme)

If your FreeAgent start date is part-way through a VAT quarter, you'll need to add pre-start-date transactions to your VAT return.

Here's a workaround for this if you're not using the VAT Flat Rate Scheme. Start here if you are using the Flat Rate Scheme.

Let's take an example. If your VAT quarter ends on 30th June, but your FreeAgent start date is 1st May, then you'll need to enter some figures for VAT for April on to your VAT return.

1. Work out and post your VAT

Add up all the VAT you need to put on your return, both output and input VAT, for the part of your quarter that came before your FreeAgent start date.

In my above example, that would be April's VAT.

Put these figures in as part of your opening balances. Here's how to work them out.

If you're invoice accounting for VAT

You'd add up all the VAT on invoices you issued dated in April, and that would be your output VAT. Let's say that came to £1,000. Put that as an opening balance, a credit entry, to code 819 VAT Charged.

And you'd then add up all the VAT on bills you received dated in April, which would be your input VAT. Let's say that was £750. Put that as an opening balance, a debit entry, to code 818 VAT Reclaimed.

If you're cash accounting for VAT

You'd add up all the VAT on money you received from your customers in April, which would be your output VAT for April. Let's say that was £1,000. Put that as an opening balance, a credit entry, to code 819 VAT Charged.

Then you'd add up all the VAT on money you paid out to your suppliers in April, to work out your input VAT. Let's say that came to £750. Put that as an opening balance, a debit entry, to code 818 VAT Reclaimed.

You may also still be waiting for your customers to pay you for invoices dated before your FreeAgent start date, and those invoices might have VAT on them, which you need to consider if you're cash accounting for VAT. Let's say that came to £400. This figure needs to be entered into code 823 Deferred VAT as a credit entry, as part of your opening balances. This figure won't appear on your VAT return, which is correct because you don't owe that VAT to HMRC until your customers have paid you.

And you may also owe some suppliers some money for bills dated before your FreeAgent start date. Let's say the VAT on those came to £300. This figure also need to be entered into code 823 as part of your opening balances but this time it's a debit entry. This figure won't appear on your VAT return, which is correct because you can't reclaim that VAT from HMRC until you have paid your suppliers.

Everyone

There's also likely to be an amount that you owed to HMRC from a previous quarter's VAT return.

In my example, that'd be the amount that you'll pay from March's VAT return. Let's say that was £300. Put that amount into code 817 VAT as part of your opening balances, as a credit entry.

If your accountant has given you one figure only

Your accountant may have given you only one figure for VAT to go into FreeAgent as part of your opening balances. If they have, then you'll need to speak to them and ask them to tell you how much of that figure should go into each of codes 817, 818 and 819.

2. Final adjustment - boxes 6 and 7

Before that VAT return can be filed, you'll need to adjust the figures in boxes 6 and 7.

For more info, check out our article on how to adjust boxes 6 and 7 in FreeAgent, without changing boxes 1-5.

When you prepare your next VAT return using FreeAgent, no adjustment to boxes 6 and 7 should be required.

How to work out the adjustments for boxes 6 and 7?

If you're invoice accounting for VAT

For the box 6 adjustment, add up the amounts you invoiced your customers for, excluding anything outside the scope of VAT, in the period between the beginning of your current quarter and your FreeAgent start date (April in the example), excluding VAT. Let's say that came to £6,700.

For the box 7 adjustment, add up the amounts your suppliers billed you for, excluding anything outside the scope of VAT, in the period between the beginning of your current quarter and your FreeAgent start date (April in the example), excluding VAT. Let's say that came to £5,000.

If you're cash accounting for VAT

For the box 6 adjustment, add up the amounts your customers paid you, excluding anything outside the scope of VAT, in the period between the beginning of your current quarter and your FreeAgent start date (April in the example), excluding VAT. Let's say that came to £6,700.

For the box 7 adjustment, add up the amounts you paid to your suppliers, excluding any items outside the scope of VAT, in the period between the beginning of your current quarter and your FreeAgent start date (April in the example), excluding VAT. Let's say that came to £5,000.

For everyone

Following the steps in ‘how to adjust boxes 6 and 7 of your VAT return’,  input the additional £6,700 and £5,000 to boxes 6 and 7.