I am trying to prepare vat reconciliation for a client that is on a cash accounting scheme. I have a problem with understanding payments on account on the debtors and creditor ledgers and weather the vat element should be included in the vat reconciliation when T1 & T2 codes have been used. Should these be included or excluded from the vat reconciliation?
If you are using sage and if sage is setup in CASH Accounting scheme, VAT element of payments on account would be included automatically while preparing VAT return.
However, saying that, VAT on your balance sheet wouldn't be same as VAT shown on VAT return. Reason being, VAT nominal accounts include all the VAT on invoices that have been posted on sage. But, Cash accounting scheme considers only VAT payments for invoices that have been paid/received.
I guess you are trying to reconcile the VAT manually to match it to Balance Sheet figure. If it is the case, then you need to consider various items. Let me give you a proforma below:
DR CR
B/F X
SALES VAT IN THE QTR/MONTH X
PURCHASE VAT IN QTR/MONTH X
SALES VAT RECEIVED (Note 1) X
PURCHASE VAT PAID (Note 2) X
CARRIED FORWARD X
---------------------------------
XX XX
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Note 1:- Sales VAT received includes sales invoices that are raised in the quarter paid by customer and sales invoices due that were outstanding as at previous quarter but paid in the current quarter
Note 2:- Same as above for Purchases
To answer your question in short, YES you need to include VAT element for payments on account. If you are using Sage, it would do automatically.
Also, Note that T2 is VAT exempt. Which means there is no VAT on these invoices (e.g., insurance, bank interest) but this should be shown on VAT return box 7.
Thank you very useful, yes Im trying to reconcile the vat manually in excel for accounts prep (I always struggle when it come to sage vat). I have analysed aged creditors and debtors reports for vat on the invoice and credit notes but wasn't sure to include payments on account, Ive had mental block all day. After including payments on account I have a little difference but could be timing. Well my difference reduces b/fwd timing difference so more than likely timing. Thank you once again youre a life saver.
