Add VAT to historical invoices

This article explains how to add VAT to invoices that have been sent whilst waiting for your VAT registration number.

When you apply for VAT registration for your business, you should select ‘Registration Applied For’ as the VAT registration status in your VAT settings in FreeAgent and enter the date you expect to be registered from. This will ensure FreeAgent adds VAT to any new invoices that you create dated on or after that date so that customers pay you the full amount. It will also allow you to update your VAT registration details once you receive your VAT number.

However, if you didn’t select ‘Registration Applied For’ as the VAT registration status whilst waiting for your VAT number to arrive and sent invoices dated on or after your VAT registration date, VAT won’t have been added to those invoices. You also won’t be able to update your VAT registration details in FreeAgent when you receive your VAT number.

Therefore, if you need to add VAT to those invoices and update your VAT settings in FreeAgent, you’ll need to follow the steps below to:

  1. Mark the invoices back to draft
  2. Update your VAT registration details
  3. Adjust the VAT rate on the invoices (if applicable)
  4. Resend the invoices (if applicable)

Please note:

  • If you have any automatic invoice reminder emails set up, you should remove these before following the steps below to avoid triggering any messages to your customers.

  • You’ll need full (level 8) access to FreeAgent to update your VAT registration details.

1. Mark the invoices back to draft

Before you can update your VAT registration details and add VAT to invoices that have been sent or marked as sent, you’ll need to mark them back to draft.

To do this, navigate to the relevant invoice and select ‘Make Draft’.

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If the invoice has been marked as paid, you’ll need to remove the payment before you can make it draft by selecting the blue payment link at the bottom of the invoice beside the invoice total.

Before you remove any explanations previously explained as ‘Invoice Receipt’, please check that you don’t have Invoice Reminder emails set up in your account to avoid triggering any messages to your customers.

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Repeat this process until all invoices dated on or after your effective date of VAT registration have been marked back to draft.

2. Update your VAT registration details

Once all the invoices dated on or after your effective date of VAT registration have been marked back to draft, you’ll be able to update your VAT registration details and enter the VAT number.

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3. Adjust the VAT rate on the invoices

Once you have updated your VAT Registration details, FreeAgent will add VAT at the rate of 0% to all your draft invoices. However, if you need to, you can manually adjust each invoice if a different rate of VAT should be charged, for example 20%.

To do this, edit the invoice line item you want to adjust the VAT rate for and select ‘Save changes’.

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Repeat this process for each invoice you want to adjust the VAT rate for.

4. Resend the invoices

If you sent the original invoices to your customers, you’ll need to resend the updated invoices to them so that they can account for VAT on their side.

Before doing so, please remember to re-explain the bank transactions relating to the payment for the invoice if applicable.

Once all the brank transactions have been explained as needed, you can resend the invoices to your customers by selecting ‘Resend by email’.

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If you need to, you can set up templates to automatically email payment reminders and a thank you note once the invoice has been marked as paid.

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