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Changing VAT schemes - VAT Cash Accounting to Standard VAT UK only

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Summary

How to switch from VAT Cash Accounting (UK) to Standard VAT (UK) VAT scheme using Sage 50 Accounts.

Resolution

Under certain circumstances you may need to change from the VAT Cash Accounting scheme to the Standard VAT scheme.

  • Standard VAT scheme - You pay VAT on invoices and credits received or issued
  • VAT Cash Accounting scheme - You pay VAT on the payments received and issued

You can use the information in this article to change your accounting scheme from the VAT Cash Accounting scheme to the Standard VAT scheme.

This procedure should be carried out at a month or quarter end, after reconciling the VAT on the VAT Cash Accounting scheme and before entering any transactions under the Standard VAT scheme.

If you have entered any transactions in the new period before changing VAT schemes, you have two options to ensure the VAT is calculated correctly under the Standard VAT scheme:

 NOTE: The reason you must do either of these two options is because the transactions entered under the VAT Cash Accounting scheme are flagged as not requiring reconciliation when you switch to Standard VAT, which means the VAT is never accounted for.

  • Take a backup, delete the transactions you have entered in the new VAT period, then reprocess them after changing your VAT scheme according to the steps below
  • Take a backup, restore your last backup before the transactions were entered, then reprocess them after changing your VAT scheme according to the steps below

 CAUTION: If you restore a backup, make sure your previous VAT period has been VAT reconciled before changing the VAT scheme, and also make sure the VAT return matches the one made before you restored the backup.


Prepare to change schemes

  1. Take two backups of your data and label them 'Before changing to the Standard VAT scheme'.
  2. Calculate and reconcile and complete the VAT Return for your final VAT Cash Accounting scheme period, including posting the VAT Transfer.
  3. To check that all VAT transactions are reconciled click VAT then click VAT Return and calculate the VAT Return up to the end of your VAT Cash Accounting period.

    There should be no transactions found.

  4. If you want to access the saved VAT Returns after switching schemes, make an archive of your data.

You're now ready to change to the Standard VAT scheme.


Change schemes

  1. Click Settings and click Company Preferences then click VAT.
  2. From the VAT Scheme drop-down list, choose Standard VAT.

    You can't amend this setting if you've transactions on your audit trail that haven't been VAT reconciled.

  3. A warning prompts you to check your recurring entries before processing them, to continue click OK then click OK.

You've now changed to the Standard VAT scheme.

There may be balances on your Sales Tax Control Account and Purchase Tax Control Account after posting your VAT transfer journals, these balances should be cleared when you account for the outstanding invoices on your next VAT Return. For more information about this, please refer to the section To account for any outstanding invoices on your next VAT Return.

NOTE: In certain circumstances it may be possible to defer the payment of VAT after switching schemes. For further advice about this, please refer to HMRC and your accountant.


Account for any outstanding invoices and duplicate values

If you've any outstanding invoices at the point of switching VAT schemes these invoices won't be included in the VAT Return as they were entered when on the VAT Cash Accounting scheme. You should include these invoices on your next VAT Return.

Payments on account reconciled under the VAT Cash Accounting scheme may be subsequently allocated to an invoice under the Standard VAT scheme. If this occurs the VAT is calculated twice, once on the payment on account on VAT Cash Accounting and once on the invoice on Standard VAT.

To avoid the above situations we've created four reports which show you any outstanding invoices and the net and VAT split and reports which list the outstanding payments on account.

You must run these reports at the point of switching VAT schemes and then keep a copy of the reports. Once you start entering transactions on the Standard VAT scheme you can't use these reports as any new transactions entered in the same date range are also included.

You can download and restore the VAT reports using this guide.

Report name Filename Location Details
Vat Cash to Standard - Reconcile Sales VAT Control SL_VCA.report Customers and click Reports then click VCA TO STANDARD This report calculates the VAT element on the outstanding amount of your sales invoices and deducts the VAT element of the outstanding amount sales credits. This report should be ran from 01/01/1980 up to the date you're switching to the Standard VAT scheme.
Vat Cash to Standard - Reconcile Purchase VAT Control PL_VCA.report Click Suppliers and click Reports then click VCA TO STANDARD. This report calculates the VAT element on the outstanding amount of purchase invoices, and deducts the VAT element on the outstanding purchase credits. This report should be ran from 01/01/1980 up to the date you're switching to the Standard VAT scheme.
Vat Cash to Standard - Reconcile Sales VAT Control SA_VCA.report Click Bank and click Reports then click VCA TO STANDARD. This report calculates the Net and VAT element on the outstanding amount of your sales on account. This report should be ran from 01/01/1980 up to the last date of your VAT period. You should print this report and use it for every VAT period until all payments on account have been allocated in full.
Vat Cash to Standard - Reconcile Purchase VAT Control PA_VCA.report Click Bank and click Reports then click VCA TO STANDARD. This report calculates the Net and VAT element on the outstanding amount of purchase payments on account. This report should be ran from 01/01/1980 up to the last date of your VAT period. You should print this report and use it for every VAT period until all payments on account have been allocated in full.

Correct the next and subsequent VAT Returns

If you've outstanding invoices which were entered on the VAT Cash Accounting scheme you should adjust the figures in boxes 1, 4, 6 and 7 to include the figures from these reports. If an invoice has been allocated to a payment on account which was entered on the VAT Cash Accounting scheme you should adjust the figures in boxes 1, 4, 6 and 7 to include the invoice value that's been allocated to the payment on account.

  1. Click VAT then click VAT Return.
  2. Enter the relevant dates then click Calculate VAT Return.
  3. Click Make adjustments and enter the following adjustments:
    Box Adjustment
    Box 1 Add the total VAT value from the SL_VCA.report minus the total VAT value of any invoices allocated to the payments on account shown on the SA_VCA.report.
     NOTE: If the VAT figure is negative on the second report, it should be added to the result from the first report.
    Box 4 Add the total VAT value from the PL_VCA.report minus the total VAT value of any invoices allocated to the payments on account shown on the PA_VCA.report.
    Box 6 Add the total Net value from the SL_VCA.report minus the total Net value of any invoices allocated to the payments on account shown on the SA_VCA.report.
    Box 7 Add the total Net value from the PL_VCA.report minus the total Net value of any invoices allocated to the payments on account shown on the PA_VCA.report.
  4. Make a note of the new values in Box 1 and 4.
  5. Click Reconcile VAT Return.
  6. When you run the VAT Transfer, you must include the adjustment values:
    • Under Sales tax amount enter the value you noted for Box 1 in step 4
    • Under Purchase tax amount enter the value you noted for Box 4 in step 4
  7. You must now journal the VAT values entered in step 6, from the Manual Adjustments nominal code into the VAT liability.
    • Click Nominal codes and click Journal entry

    If the value on the Manual Adjustments nominal code is a credit balance post the following journal:

    N/C Name Details T/C Debit Credit
    2204 Manual Adjustments Switching VAT schemes T9 Difference between total adjustment value from boxes 1 and 4.  
    2202 VAT Liability Switching VAT schemes T9   Difference between total adjustment value from boxes 1 and 4.
    If the value on the Manual Adjustments nominal code is a debit balance post the following journal:
    N/C Name Details T/C Debit Credit
    2204 Manual Adjustments Switching VAT schemes T9   Difference between total adjustment value from boxes 1 and 4.
    2202 VAT Liability Switching VAT schemes T9 Difference between total adjustment value from boxes 1 and 4.  

Why the VAT reconciliation reports don't agree

A difference between the VAT reconciliation reports and the balance on the VAT control accounts may be caused by the following:

  • If you use the Write Off, Refunds and Returns Wizard, the VAT isn't removed from the relevant VAT control account, but the invoice(s) are marked as fully paid. Therefore the VAT is included on the VAT control account but the invoice(s) don't appear on the VAT reconciliation reports
  • If you've posted any sales or purchase transactions with a T9 tax code, but still entered a value into the VAT amount
  • If you've not correctly posted your VAT journals to clear the VAT liability for previous VAT periods