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How to post the journal entries required after you de-register your business for VAT

This article explains how to post the journal entries that may be required after you have de-registered your business for VAT and updated your VAT settings in FreeAgent.

You will need to post journal entries after de-registering your business for VAT in the following scenarios:

Paying VAT on stock and assets you held when you de-registered

The scenario

If you reclaimed VAT on any stock you bought for resale or on any capital assets you bought to use in our business while it was registered for VAT, you will have to pay HMRC back the VAT that you reclaimed when you de-register if both of the following conditions also apply:

  • The combined VAT on all these items came to more than a total of £1,000.
  • You still have that stock and/or those assets.

How to post the journal entries

Follow the steps outlined below to post the journal entries to record this in FreeAgent:

  • Date the journal entries with the date that you de-registered with HMRC.
  • If you’re paying back VAT on stock or capital assets, credit account 819, ‘VAT Charged’, with the amount of VAT you will repay to HMRC.
  • If you're paying back VAT on stock, debit account 101, ‘Cost of Sales’, with the amount of VAT you will repay.
  • If you're paying back VAT on assets, you’ll then need to debit the appropriate ‘capital assets brought forward’ or ‘additions’ account with the amount of VAT.

For example, if you de-register your business for VAT on 30th September, and at that point you hold both stock on which you've reclaimed £750 of VAT and assets on which you'd reclaimed £800 in VAT, you should post the following journal entries with the date of 30th September:

  • Credit account 819 (VAT Charged) with £1,550.
  • Debit account 101 (Cost of Sales) with £750.
  • Debit account 601-X or 602-X (select appropriate code for capital assets brought forward or purchased from the list of journal codes) with £800.

Reclaiming VAT on bills you received after de-registration

The scenario

If you expect to receive a bill from a supplier after the de-registration date for work that was done before you de-registered, you can reclaim VAT on that bill when you de-register.

To reclaim the VAT you’ll need to post journal entries, for the amount of VAT you're reclaiming and date them the date on which you de-registered for VAT.

How to post the journal entries

Post the following journal entries with the date that you de-registered with HMRC:

  • Debit account 818, ‘VAT Reclaimed’, with the amount of VAT you’re reclaiming from the s bill.
  • Credit the account you will allocate the bill to (e.g. 285, ‘Accountancy Fees’) You may need to ask the supplier for an estimated bill in order to reclaim the VAT on your final return.

Reclaiming VAT on bad debts after de-registration

The scenario

If you're using the invoice method of accounting for VAT and a customer doesn’t pay you, you're entitled to claim bad debt relief from HMRC. To qualify, the invoice must remain unpaid for at least six months after the invoice date. You can claim back VAT on bad debt relief after you've de-registered by posting a journal entry for the amount of VAT you're reclaiming.

How to post the journal entries

Post the following journal entries with the date that you wrote off the bad debt:

  • Credit account 450 (Bad Debts Written Off) with the amount of VAT you’re reclaiming.
  • Debit account 818 (VAT Reclaimed) with the amount of VAT you’re reclaiming.

Once the journal entries are recorded in FreeAgent, you will then need to apply to HMRC for your refund.

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