Skip to content
logo Knowledgebase

How journal entries affect the VAT Return

Created on  | Last modified on 

Summary

How journal entries affect the VAT Return in Sage Accounting Start. This explains when journals update VAT Return boxes and how Flat Rate VAT works.

Description

You use journal entries to move values between ledger accounts. Journals don’t appear on the VAT Return by default.

You can include VAT on a journal if required. When you do, the journal can affect specific VAT Return boxes depending on the ledger account and entry type.

Resolution

Understand how journals update the VAT Return

When you include a journal on the VAT Return, Sage updates boxes based on the ledger account and if it's a debit or credit.

Ledger account Default nominal code Entry type VAT Return impact
VAT on sales 2200 Credit Increases Box 1
VAT on sales 2200 Debit Decreases Box 1
VAT on purchases 2201 Credit Decreases Box 4
VAT on purchases 2201 Debit Increases Box 4
Income accounts 4000 to 4940 Credit Increases Box 6
Income accounts 4000 to 4940 Debit Decreases Box 6
Expenditure account 5000 to 9999 Credit Decreases Box 7
Expenditure accounts 5000 to 9999 Debit Increases Box 7
Any other ledger account Any Credit

Increases Box 6
Any other ledger account Any Debit

Increases Box 7

Understand journals on the Flat Rate VAT Scheme

If you use the Flat Rate VAT Scheme, journals don’t directly affect Box 1 or Box 4 on the VAT Return.

This is because Flat Rate VAT calculates VAT due as a percentage of turnover, not from individual VAT entries.

Record sales when using Flat Rate VAT

If you need to record a sale using a journal:

  • Use an income ledger account
  • This updates Box 6
  • Sage calculates VAT using your flat rate percentage and updates Box 1 automatically

Adjust Box 1 or Box 4 when using Flat Rate VAT

If you still need to amend Box 1 or Box 4:

  • Adjust the VAT Return manually, or
  • Create a purchase invoice and select Outside the scope of Flat Rate VAT to affect Box 4

Related Solutions

View More...