How the VAT accounts work in FreeAgent
This article explains how the VAT nominal accounts work in FreeAgent.
There are four accounts in FreeAgent that make up the VAT balance:
You can view any entries to these accounts by navigating to the Show Transactions report.
817 - VAT
Account ‘817 - VAT’ in FreeAgent shows the total amount due to, or from, HMRC.
These totals show as liabilities and payments on the VAT ‘Statement of Account, which you can access by navigating to the ‘Taxes’ tab at the top of the screen and selecting ‘VAT’ from the drop-down menu.
Bank transactions that are explained as VAT payments to, and VAT refunds from, HMRC will be added here and are included in the ‘Balance Due to HMRC’ running total.
As entries to account 817 don’t impact the VAT return, it’s possible to create journal entries to the account, which will impact the VAT ‘Statement of Account’, in a VAT locked period.
818 - VAT Reclaimed
Account ‘818 - VAT Reclaimed’ in FreeAgent shows the total amount of VAT being reclaimed on costs in box 4 of the VAT return.
Any entries to 818 will be added to box 4 of the VAT return only. Find out how to adjust box 4 of your VAT return.
It’s not possible to add an entry to 818 that doesn’t appear on the VAT return.
At the end of each VAT period, the balances in account 818 are ‘cleared down’ to account 817. For example, if account 818 has an overall debit balance at the end of the VAT period, FreeAgent will add an equal credit balance to bring the account back to zero and add a corresponding debit entry to account 817, and vice versa.
As entries to account 818 impact the VAT return, it’s not possible to create journal entries to the account in a VAT locked period.
819 - VAT Charged
Account ‘819 - VAT Charged’ in FreeAgent shows the total amount of VAT due on sales in box 1 of the VAT return.
Any entries to 819 will be added to box 1 of the VAT return only. Find out how to adjust box 1 of your VAT return.
It’s not possible to add an entry to account 819 that doesn’t appear on the VAT return.
At the end of each VAT period, the balances in account 819 are ‘cleared down’ to account 817. For example, if account 819 has an overall credit balance at the end of the VAT period, FreeAgent will add an equal debit balance to bring the account back to zero and add a corresponding credit entry to account 817, and vice versa.
As entries to account 819 impact the VAT return, it’s not possible to create journal entries to the account in a VAT locked period.
823 - Deferred VAT
Account ‘823 - Deferred VAT’ is a holding account that FreeAgent uses for VAT adjustments.
Entries to this category will not modify any of the figures on your VAT return or change the balance on your VAT ‘Statement of Account’.
There are several different situations when the ‘Deferred VAT’ account is used to make VAT adjustments in FreeAgent. These include:
- when a business is cash accounting for VAT
- when a transaction in a VAT locked period is amended
- when a business that is invoice accounting for VAT receives a payment for the invoice before the invoice date
- when a business that is cash accounting for VAT pays a supplier bill before the bill date
Find out more about how FreeAgent uses the deferred VAT account.