VAT return filing for two businesses

This article explains how to file a VAT return for two businesses using a single FreeAgent account.

If you have multiple companies or businesses, you'll need separate FreeAgent accounts for each company or business. For example, if you need to comply with Making Tax Digital (MTD) for Income Tax and you're a sole trader who also rents out properties, or a landlord who also has a self-employed business, you'll need separate sole trader and unincorporated landlord accounts in FreeAgent. Read more about how to use FreeAgent for MTD for Income Tax if you’re a sole trader with multiple businesses or rental income.

FreeAgent is not specifically designed to file VAT for two different businesses in the one single VAT return, however this is possible with some movement of figures between the two businesses' accounting records as detailed below.

If you’re unsure how to move figures between the two businesses' accounting records, please speak to your accountant. If you’re not currently working with an accountant, you may wish to find one through FreeAgent CoPilot.

1. Choose an account to file VAT from

You’ll only be able to file the VAT return using one of the FreeAgent accounts so you will first need to choose which account you would like to file from.

For example, if you have two sole trader accounts in FreeAgent, you'll need to choose one of the accounts to file the VAT return from.

We’ll call the sole trader account that will be used for filing the VAT return 'business one' in this scenario, and the second account 'business two'.

2. Add a new asset category in the business one account

Next, you’ll need to add a new asset category in the business one account and call it something like 'VAT due from business two'.

3. Add a new liability category in the business two account

You’ll also need to add a new liability category in the business two account and call it something like 'VAT due to business one'.

4. Move the figures from the business two VAT return to business one VAT return

If both of your accounts are sole trader accounts, you’ll need to create journal entries in the business one account to move the figures from the business two account’s VAT return to the business one account’s VAT return. We'll explain below what these would be.

If one of your accounts is an unincorporated landlord account, journals to adjust boxes 1 and 4 may not be necessary as typically rental income is exempt from VAT, so you may only need to adjust boxes 6 and 7. However, if you’re a landlord who has “opted to tax”, there may be journals to post to include VAT from a landlord account. If this scenario applies to you, please speak to your accountant about which journals are required.

Boxes 1 and 4

For example, if there was £900 in box 1 and £100 in box 4 of the business two account’s VAT return, you’ll need to create the following journal entries dated on the first day of the relevant VAT return in the business one account:

• Credit ‘819 - VAT Charged’ for £900
• Debit ‘818 - VAT Reclaimed’ for £100
• Debit the custom asset category you created for £800

If you’re unsure which journal entries are required, please speak to your accountant. If you’re not currently working with an accountant, you may wish to find one through FreeAgent CoPilot.

Boxes 6 and 7

You’ll also need to add the figures from boxes 6 and 7 of the business two account’s VAT return to the business one account’s VAT return.

For example, if there was £200 in box 6 and £300 in box 7 of the business two account’s VAT return, you’ll need to adjust boxes 6 to 9 of the business one account’s VAT return.

If you’re unsure which adjustments are required, please speak to your accountant.

5. File the VAT return from the business one account

Once you’ve created the journal entries and adjusted boxes 6 to 9, the figures from the business two account’s VAT return will be included in the business one account’s VAT return.

You can then file the VAT return from the business one account to HMRC when ready and pay the VAT bill.

In the business two account, you can mark the VAT return as filed.

6. Explain the VAT payments

VAT payment to HMRC

Once you’ve paid the VAT bill, you can explain the bank transaction in the business one account as a VAT payment to HMRC.

VAT payment from business two account

When the business two account pays the business one account back for the VAT that business one paid on its behalf, £800 in our scenario, you’ll need to explain the payments to the custom categories created in each account.

In the business one account, you’ll need to explain the bank transaction from the business two account as the Type ‘Other Money In’, and the Category ‘VAT due from business two’.

In the business two account, you’ll need to explain the bank transaction to the business one account as the Type ‘Other Money Out’, and the Category ‘VAT due to business one’.

7. Net off the VAT liability in the business two account

Finally, you’ll need to create the following journal entries in the business two account for the amount of VAT paid:

• Debit ‘817 - VAT’ for £800
• Credit the custom liability category you created for £800

This will show that the business two account’s VAT liability has been settled by the business one account.

The accounts for both businesses will be settled as required but please do check with your accountant to make sure they’re happy with this process.