VAT surcharges

Summary

How to record VAT surcharges imposed by HMRC in Accounting Start.

Description

HMRC may impose a VAT surcharge when

  • A VAT Return is not submitted and paid by the due date
  • A VAT Return is incomplete or incorrect

When this happens, HMRC may impose a fine or recalculate the payment required. This is known as a VAT surcharge.

Resolution

How it works

Record the amount of the VAT surcharge using journals. Then record the payment of the surcharge separately. To do this

  1. Create a new category. This makes it easier to track any VAT surcharges on your financial reports. Record this as an overhead (expense) on your Profit and Loss, and as a current liability on your Balance Sheet.
  2. Enter a journal to record the amount of the surcharge.
  3. Record details of the payment to show when you've paid the surcharge.

Create a VAT surcharge category

To record your VAT surcharge, create a new category to track any VAT surcharges on your financial reports. As this is an expense to the business, the category must be in the Overheads type.

  1. From More, choose Business Settings.
  2. In Financial Settings, select Chart of Accounts.
  3. Select New Category. Leave the defaults as selected and then enter the following information:
    Category Name - enter a name such as VAT surcharges
    Category Code - enter a code for the category. If you use the default chart of accounts, we recommend a code between 6000 and 9999, such as 7907
    Type  - choose Overheads
    VAT Rate - choose No VAT
  4. Select Save.

Make the VAT liability category visible for payments

To record the payment of the VAT surcharge, you need to make sure the VAT liability category is visible when entering Money Out.

  1. From the Chart of Accounts, select the VAT Liability category.
  2. In the Visibility section, select Money Out and Save.

Record the VAT surcharge

Create a journal to record the value of the VAT surcharge. In our example, the surcharge is £100.

  1. From More, choose Journals, then New Journal.
  2. Enter a Date and Reference for the VAT surcharge and, if required, enter a Description.
  3. Enter the details on two lines as follows:

Don't forget the total value of debits and credits must be the same before you can save the journal. The VAT surcharge must not be included in the VAT Return.

Category Details Debit Credit Include on VAT Return?
VAT Surcharges (7907) VAT Surcharge 100.00 0.00 Leave clear
VAT Liability (2202) VAT Surcharge 0.00 100.00 Leave clear
  1. Select Save.

Record the payment of the VAT surcharge

  1. From Banking, open the required bank account.
  2. Select New Entry, then Money Out.
  3. Enter the date of the payment, the amount paid and a reference if required.

  4. Enter the details of the category as follows

    Category Details VAT Rate Total
    VAT Liability (2202) VAT Surcharge No VAT 100
  5. Select Save.

You’ve now recorded the payment of the VAT surcharge to HMRC. This reduces the balance on the VAT Liability category.




Solution Properties

Solution ID
222001000100672
Last Modified Date
Thu Aug 24 10:36:41 UTC 2023
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