How to adjust boxes 1 and 4 of your VAT return

This article explains how to increase or decrease the amounts in boxes 1 and 4 of your VAT return.

FreeAgent automatically populates the boxes on your VAT return based on the information entered into your account. For information on what goes into each of these boxes, please refer to HMRC's guidance.

If you need to make any VAT corrections, the easiest way is to edit the original VAT item. For example, you can edit the original invoice, bill, out-of-pocket expense or bank transaction, and the relevant VAT correction will automatically be made in the next open VAT period. For more information on how to make corrections in a VAT locked period, please see this article.

However, if for any reason you’re unable to edit the original VAT item, you can adjust the figures in box 1 and box 4 of your VAT return by creating journal entries as detailed below. You’ll need full (level 8) access to your FreeAgent account to create journal entries.

Please note that FreeAgent is unable to advise on the exact journals you’ll need to create as we’re not authorised by HMRC to provide accounting advice. If you have an accountant, please check with them before making any adjustments to these boxes.

For information on how to adjust boxes 6 to 9 of your VAT return, please see this article.

Adjusting boxes 1 and 4 of your VAT return by creating journal entries

To adjust box 1 or box 4 of your VAT return by creating journal entries, navigate to the 'Accounting' tab at the top of the screen and select 'Journal Entries' from the drop-down menu.

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Select ‘Add New Journal Entries’ in the top-right.

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Whilst FreeAgent is unable to advise on the exact journals you’d need to create, the following guidance may help:

Adjusting box 1

  • A debit to code ‘819 - VAT Charged’ will decrease the amount in box 1 of your VAT return.
  • A credit to code ‘819 - VAT Charged’ will increase the amount in box 1 of your VAT return.

Adjusting box 4

  • A debit to code ‘818 - VAT Reclaimed’ will increase the amount in box 4 of your VAT return.
  • A credit to code ‘818 - VAT Reclaimed’ will decrease the amount in box 4 of your VAT return.

Please note that you’ll only be able to create journal entries to categories ‘818 - VAT Reclaimed’ and ‘819 - VAT Charged’ when the date of the journal does not fall within a VAT period when the VAT return has already been filed to HMRC, or has been marked as filed.

If you’re adjusting the figures in boxes 1 and 4 with journal entries, it’s likely that you’ll also need to adjust the figures in boxes 6 and 7 of your VAT return.

If you’re unsure which journal entries are required for the adjustment, including which category to select, or if you’re on the VAT Flat Rate Scheme, please ask your accountant.

A record of journal entries being created will appear in your Audit Trail report.

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Additional VAT categories in FreeAgent which don’t impact an individual VAT return

Category ‘817 - VAT’ is the top-level VAT account in FreeAgent used to record the liability due to or from HMRC. Therefore, creating journal entries to this category will not update any of the figures on your VAT return and will instead update the balance on your VAT ‘Statement of Account’.

Category ‘823 - Deferred VAT’ is a holding account that FreeAgent uses for VAT adjustments. Therefore, creating journal entries to this category will not update any of the figures on your VAT return or update the balance on your VAT ‘Statement of Account’.

Viewing the adjustments on your VAT return

To view any adjustments you’ve made to boxes 1 and 4 on your VAT return, navigate to the 'Taxes' tab at the top of the screen and select ‘VAT’ from the drop-down menu.

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Select the relevant VAT return from the list.

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Select the ‘Full Report’ tab to view the adjustments to the total value of boxes 1 and 4.

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An adjustment to box 1 will be displayed as a ‘VAT Charged (Journal)’ in the 'Sales' section.

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An adjustment to box 4 will be displayed as a ‘VAT Reclaimed (Journal)’ in the 'Purchases' section.

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