Different businesses use nominal ledgers differently when recording entries in their accounts. This article explains how VAT moves between different nominal ledgers when using the default VAT ledgers within the software.
NOTE:
For advice on which ledger accounts for your accounts specifically, refer to your accountant.
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Depending on the VAT Scheme that you’ve selected within Accounting can mean that the movement between nominal ledger accounts can differ. Here are the main differences between Standard VAT and Cash Accounting:
You're liable to pay/receive the VAT at the point you generate an invoice. This is regardless of whether your customer has paid the invoice or not
For a sales invoice, the VAT goes to the nominal account ‘2200 VAT on Sales’. For a purchase invoice, the VAT goes to the nominal account ‘2201 VAT on Purchases’
VAT on Sales/purchases stays in 2200/2201 until you create a VAT Return that includes the relevant invoices
When you create a VAT Return, VAT on sales/purchases moves from account 2200/2201 to ‘2202 VAT owed To/From HMRC’
If you make an adjustment after creating a VAT Return, it's logged in the nominal account ‘2203 VAT Allocations & Adjustments’
You aren’t liable to pay/receive the VAT when you create an invoice, it’s only when the invoice is paid
When you create a sales invoice the VAT goes to the nominal account ‘2204 VAT on Sales Holding Account’. When you create a purchase invoice the VAT goes to the nominal account ‘2205 VAT on Purchases Holding Account’
VAT for paid sales/purchases invoices stays in 2200/2201, until you create a VAT Return for the period those invoices are in
When you create a VAT Return for that period, VAT on sales/purchases moves from nominal account 2200/2201 to ‘2202 VAT owed To/From HMRC’
The VAT amount stays in holding accounts until the invoices are paid. Once a sales invoice is paid, the VAT for that sales invoice moves from holding account to the nominal account ‘2200 VAT on Sales’ and when the purchase invoice is paid, the VAT for that purchase invoice moves to the nominal account ‘2201 VAT on Purchases’
If you make any Adjustment/Correction after creating the VAT Return that Adjustment/Correction are logged in to the nominal account ‘2203 VAT Allocations & Adjustments’