You will need to cancel your VAT registration with HMRC before you update your VAT registration status in FreeAgent. You can find instructions for how to do this on HMRC’s website.
HMRC will notify you when you have successfully de-registered for VAT. Take note of the date of this notification, as you will need it when you update your VAT registration status in FreeAgent.
2. Ensure your VAT returns are set to the ‘invoice’ accounting basis
When you update your VAT registration status to ‘de-registered’, FreeAgent will generate your final VAT return. As final VAT returns should be prepared on an invoice accounting basis, your final VAT return must be set to the ‘invoice’ accounting basis in FreeAgent.
To update the accounting basis of your VAT return, follow the steps outlined in this article. If your VAT return is not set to the ‘invoice’ accounting basis, you’ll encounter an error message when you attempt to update your VAT registration status in FreeAgent.
3. Review your VAT transactions
Before you de-register for VAT in your FreeAgent account, you’ll first need to check that you've entered all your transactions that include VAT. These might include bank transactions, invoices, out-of-pocket expenses and supplier bills.
Make sure you do this before updating your VAT settings and submitting your final VAT return in FreeAgent. There is no way of undoing VAT de-registration in FreeAgent once your final VAT return has been filed.
Update your VAT settings in FreeAgent
1. Change your VAT registration status
Select 'Settings' from the drop-down menu in the top-right corner and then select 'VAT Registration' from the 'Accounting, Tax & VAT' section.
In the ‘VAT registration status’ area, select the ‘Are you VAT Registered?’ drop-down menu and select ‘De-registered’ from the list.
2. Set the de-registration date
Next, scroll down to ‘Important dates on your VAT registration certificate’. If you file Making Tax Digital (MTD) VAT returns, in the ‘Effective Date of VAT De-registration’ field you should enter the day before the date of your de-registration notification from HMRC. If you don't use MTD to file VAT returns, you should enter the same date as your de-registration notification from HMRC.
The VAT de-registration date that you enter cannot be earlier than your VAT registration date and cannot be within a period where a VAT return is locked in FreeAgent. If you’ve issued VAT invoices, the de-registration date can't be earlier than the date of the last VAT invoice that you issued, as HMRC doesn’t allow you to issue VAT invoices after de-registration.
If you add a VAT de-registration date in error, you may encounter a ‘VAT registration is locked and cannot be changed’ error message, which is generated when your accounts have become locked in FreeAgent. To remove the de-registration date, you’ll need to unlock the account and edit the VAT settings. Once you’ve made the relevant edits, save your changes and remember to reapply the lock.
What happens next?
Once you’ve added the VAT de-registration date, FreeAgent will automatically generate your final VAT return, calculated up to that date.
Once you’ve filed the VAT return, you won't be able to add VAT to any subsequent transactions, including bank transactions, invoices, supplier bills and out-of-pocket expenses.
If you send recurring invoices to your customers, FreeAgent will issue those invoices for the net amount (i.e. without VAT) once you’ve de-registered for VAT. For example, if you'd been charging a customer £1,000 a month plus standard-rated VAT at 20% (i.e. £1,200), FreeAgent will issue monthly invoices for £1,000 from the VAT de-registration date onwards. If you would like your customer to continue to pay £1,200, you would need to edit the relevant recurring invoice profile and adjust the net amount to £1,200.
You may need to post journal entries after updating your VAT settings in FreeAgent following VAT de-registration. Here are a few of the most common scenarios that would require you to post journal entries:
Paying back VAT on stock and assets you held when you de-registered
Reclaiming VAT on bills you expect to receive after the date of de-registration
Reclaiming VAT on bad debts after de-registration
If any of the above apply to you, please follow the steps outlined in this article.
Please remember: there is no way of undoing VAT de-registration in FreeAgent once the final VAT return has been filed. If you decide to re-register for VAT with HMRC in the future, you will need to create a new FreeAgent account once you have re-registered.
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