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VAT Ledger Movement

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Summary

Information on VAT ledger movement in Sage Accounting.

Description

Different businesses use nominal ledgers differently when recording entries in their accounts. Below, see how VAT moves between different nominal ledgers when using the default VAT ledgers within the software.

NOTE:

For advice on which nominal accounts to use, contact your accountant.

Resolution

The way transactions move between nominal ledger accounts in Accounting depends on the VAT scheme you’ve selected. Here’s how Standard VAT and Cash Accounting differ:

▼ Standard VAT
  • 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’
▼ Cash Accounting
  • 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 system keeps the VAT amount in holding accounts until you pay the invoices. When you pay a sales invoice, the VAT moves from the holding account to ‘2200 VAT on Sales’. When you pay a purchase invoice, the VAT moves to ‘2201 VAT on Purchases’
  • The system keeps the VAT amount in holding accounts until you pay the invoices. When you pay a sales invoice, the VAT moves to ‘2200 VAT on Sales’. When you pay a purchase invoice, the VAT moves to ‘2201 VAT on Purchases’

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