What to do when you have amounts remaining in your VAT ledger accounts after you pay your VAT.

This may happen when you use reverse charge VAT.

When you enter a transaction with VAT:

We update the VAT on Sales or VAT Purchases ledger accounts. This depends on whether it is a sales or a purchase.

When you submit a VAT return:

We transfer the amounts from VAT on Sales and VAT on Purchases ledger accounts. These go to the VAT Liability ledger account. This tells you how much you owe to HMRC. The balance of the VAT on Sales and VAT on Purchases Ledger accounts is now zero.

When you pay your VAT return:

We update the VAT liability ledger account with the amount of the payment. When you have fully paid your VAT, the balance of the VAT liability ledger account is zero.

When the VAT ledger accounts are not zero:

There may be times when the balance of the VAT ledger accounts is not zero after paying your VAT return. This usually happens when you use reverse charge VAT.

As you pay your VAT:

Your want the VAT Liability ledger account to be zero. This ensures your financial reports are accurate.

You can check this on the Nominal Activity report.

• Read about the Nominal Activity report.

If the VAT ledger accounts aren't zero, you can transfer the values to the correct the ledger accounts. To do this, use a journal.

For example:

After you fully pay your latest VAT return, your VAT Liability ledger account has £20 Debit value. The the VAT on Sales has £20 credit value.

Create a journal to clear the VAT

Create a journal to transfer the amount from the VAT Liability ledger account to the VAT on Sales or VAT on Purchases ledger accounts.

Enter the opposite debits and credits to the amounts on the nominal activity report.

Do not select the option to include this on your VAT return. You have already declared these amounts.

1. From Journals, choose New Journal.
2. Choose the VAT on Sales or VAT on Purchases ledger account.
3. Enter the amount to clear the value as a debit or credit. This should be opposite the amount currently showing on the Nominal Activity report. In our example, we choose the VAT on Sales ledger account and enter 20 as a Debit.
4. On the next row, choose the VAT Liability ledger account.
5. Enter the amount to clear the value as a debit or credit. This should be opposite the amount currently showing on the Nominal Activity report. In our example, we enter 20 as a Credit.
6. If you have outstanding amounts in both VAT on Sales and VAT on Purchases, add an extra row. Don't forget the total debits must equal the total credits before you can Save.

Read our articles:

• Edit a journal
• Copy a journal
• How journals affect the VAT return
• Control account warnings when posting journals