Enter opening VAT balances (mid-quarter and not Flat Rate Scheme)

This article explains how to enter your VAT opening balances if your FreeAgent start date is part-way through a VAT quarter and you’re not using the VAT Flat Rate Scheme.

For example, if your VAT quarter starts on 1st April and ends on 30th June, but your FreeAgent start date is 1st May, you'll need to enter some figures for VAT for April on your VAT return.

The opening VAT balances that you need to enter depend on whether you’re invoice accounting for VAT or cash accounting for VAT.

If you're using the VAT Flat Rate Scheme, find out how to enter your opening VAT balances in this scenario instead.

Invoice accounting for VAT

Opening balances

If you're invoice accounting for VAT, you’ll need to enter the following VAT opening balances:

• Credit code ‘819 - VAT Charged’ for the amount of VAT on invoices you issued dated in the period during the VAT quarter but before your FreeAgent start date (April in the example above).
  
  
• Debit code ‘818 - VAT Reclaimed’ for the amount of VAT on bills you received in the period during the VAT quarter but before your FreeAgent start date (April in the example above).
  
  
• Credit code ‘817 - VAT’ for the amount that you owed to HMRC from the previous quarter's VAT return (debit for money owed from HMRC).

VAT return adjustments

You’ll then need to adjust the figures in boxes 6 and 7 of the VAT return before you file it to HMRC.

For the box 6 adjustment, enter the total amount you invoiced your customers for, in the period during the VAT quarter but before your FreeAgent start date (April in the example above), excluding VAT.

For the box 7 adjustment, enter the total amount that your suppliers billed you for, in the period during the VAT quarter but before your FreeAgent start date (April in the example above), excluding VAT.

If you're unsure which opening VAT balances you need to enter and which adjustments you need to make, please ask your accountant.

Cash accounting for VAT

Opening balances

If you're cash accounting for VAT, you'll need to enter the following VAT opening balances:

• Credit code ‘819 - VAT Charged’ for the amount of VAT on money you received from your customers in the period during the VAT quarter but before your FreeAgent start date.
  
  
• Credit code ‘817 - VAT’ for the amount that you owed to HMRC from the previous quarter's VAT return (debit for money owed from HMRC).
  
  
• Debit code ‘818 - VAT Reclaimed’ for the amount of VAT on money you paid out to your suppliers in the period during the VAT quarter but before your FreeAgent start date.

If you’re still waiting for some customers to pay you for invoices dated before your FreeAgent start date and those invoices have VAT on them, enter the amount of that VAT as a credit entry to code ‘823 - Deferred VAT’. Please note that this figure won't appear on your VAT return because you don't owe that VAT to HMRC until your customers have paid you.

If you also owe some suppliers money for bills dated before your FreeAgent start date and those bills have VAT on them, enter the amount of that VAT as a debit entry to code ‘823 - Deferred VAT’. This figure also won't appear on your VAT return because you can't reclaim that VAT from HMRC until you have paid your suppliers.

VAT return adjustments

You’ll then need to adjust the figures in boxes 6 and 7 of the VAT return before you file it to HMRC.

For the box 6 adjustment, enter the total amount your customers paid you, in the period during the VAT quarter but before your FreeAgent start date (April in the example above), excluding VAT.

For the box 7 adjustment, enter the total amount that you paid your suppliers, in the period during the VAT quarter but before your FreeAgent start date (April in the example above), excluding VAT.

If you're unsure which opening VAT balances you need to enter and which adjustments you need to make, please ask your accountant.

Explaining the payments in FreeAgent

When you pay the balance to HMRC that you owed from the previous quarter's VAT return, find out how to explain a VAT payment to HMRC.

When your customers pay you the money they owe and you’re explaining the bank transactions, select ‘Other Money In’ as the transaction ‘Type’ and ‘Receipt from Initial Debtor’ as the transaction ‘Category’.

When you pay the money that you owe to your suppliers and you’re explaining the bank transactions, select ‘Other Money Out’ as the transaction ‘Type’ and ‘Payment to Initial Creditor’ as the transaction ‘Category’.

The effect on your VAT return

FreeAgent will treat all payments to initial debtors and creditors as incurring 20% VAT on your VAT return when cash accounting for VAT.

If the payment has a different rate of VAT or is out of scope for VAT, you’ll need to adjust the figures in boxes 1 and 4 of your VAT return by creating the following journal entries:

Adjust box 1

• Debit code ‘819 - VAT Charged’ for the amount you want to decrease the figure in box 1 by.
  
  
• Credit code ‘823 Deferred VAT’ for the amount you want to decrease the figure in box 1 by.

Adjust box 4

• Credit code ‘818 - VAT Reclaimed’ for the amount you want to decrease the figure in box 4 by.
  
  
• Debit code ‘823 Deferred VAT’ for the amount you want to decrease the figure in box 4 by.

You may also need to adjust boxes 6 to 9 of your VAT return.

If you’re unsure which adjustments you need to make, please ask your accountant.