Hi I need to reconcile my sales tax control account on sage, at the moment my control account says £28839 but the vat return says £7332. I have checked the transactions and it appears some sales invoices where entered as T9 but in a previous year which is the difference I am looking for, don't know why they have been entered as T9. this is a new client and I want to correct the control account so it balances going forward, anyone know how I can do this?
I am not sure I understand you. As far as I remember T9 in Sage line 50 means out of scope and therefore there is not VAT generated on sales transaction. Am I correct?
In that case you understated your output VAT in your VAT return in that period-previous year.
I would correct this by adjusting the output VAT in the VAT return for the current period, if the difference is within the threshold.
Secondly, I would always reconcile the VAT accounts in Excel in addition to Sage.
In your post, when you say:"my control account says £28839 but the vat return says £7332", are you referring to VAT return for current period? and are you comparing sales tax account balance with the output tax amount on the VAT return?
I don't use Sage now, but as far as I remember the VAT return generated in Sage covers only a certain period and once you reconcile the items in that period, the difference in previous period is not carried forward.
Am I correct? People, please correct me if I am not making any sense.
Hi yes T9 is outside the scope but the invoices entered in a previous year should have been T1. And Yes I was comparing the sales tax to the current vat return. My understanding is the balance is the control accounts should equal the balances on the vat return for the same period.
Since it is only affecting the balance sheet I was going to do a journal in the sales tax account to correct it, obviously one entry using T9 to correct the error and then T1 so it hits the vat return for the current period. Does that sound ok thanks for your help Julie
No, the balance on the sales and purchase tax control accounts won't necessarily match the outputs and inputs VAT on the return, although in some circumstances it's possible that they can and should.
Those circumstances - well, the main three - are that
You are not operating the VAT on any special scheme (including the cash basis)
You are looking at the balance on the relevant control account via a report that's showing you the balance at the same date as the return (and not, for example, looking at the balance on the account in the nominal ledger screen)
You or your predecessor have correctly journalled the input and output tax amounts for each return from the control accounts to the liability account. (It's surprising how many times I've seen records in which this hasn't been done!)
Provided all three of these apply then, yes, in theory the balance on the sales tax control account at (say) 30th April 2013 should in theory match the outputs VAT on a return for the period up to that same date.
If you are on a cash basis, for example, then it's not as simple as that: The sales tax control account contains the VAT element of all sales and vatable income - most notably sales invoices, regardless of whether or not customers have paid up - whereas the return only shows the VAT element of sales etc where the money has been received. This can be reconcilable, though, by looking at the debtors at the same date and working out the VAT element.
If you aren't on a cash basis, and the above three circumstances apply, yet the balance doesn't match, then that'll be where the hitherto unmentioned circumstance 4 comes into it:
4. There have been no mistakes involving things going into that account.
I'm slightly confused by your assertion that these previous year invoices are the explanation, on the basis that they are T9 instead of T1. Could you therefore confirm one thing for me, please - that even though they are T9 transactions, they have been posted with a VAT element, and that VAT element appears in the sales tax control account?
If they've been posted as T9 but without a VAT element then, although they appear on the face of it to be wrong (and therefore need to be addressed), they can't be the explanation for the difference.
If they've been posted as T9 but with a VAT element then the VAT element is going to be in the sales tax control account, and won't have appeared on a VAT return, so could be part of the problem.
Note that I said "could be part of the problem" there. Double check that your predecessor hasn't already spotted their mistake and dealt with it - but doing so in such a way that it's not shown correctly on Sage (e.g. have they manually adjusted a return so the VAT has been paid?)
If it turns out that these transactions are the problem, and they need to be included on a return (and the VAT therefore included) then you should just be able to go back and edit the transactions - change the T9 to T1. In these circumstances there's no need to mess around with journals - by setting the transactions to T1, the next time you run a VAT return on Sage it'll recognise that they are transactions not yet included on a return, and will offer to include them. Make sure you inform the client, though, so they're ready for the shock of their next return being £22.5K higher than they'd otherwise expect!
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Vince M Hudd - Soft Rock Software
(I only came here looking for fellow apiarists...)
Yes there is a vat element in the sales control account, which is strange as you have to over ride the vat amount when you select T9 and manually enter the figure. I dropped the sales tax control account into excel and reconciled it, so I know the difference related to these invoices. I've spoken to my client and he knows he did this but forgot about it. Thanks foe the tip on changing the code.
The key point is that, in the case of the transactions Beverley has described, the change is _only_ to the tax code, not to the amounts, nominal codings, etc. The changes will have no effect on, for example, the P&L or balance sheet figures - the only effect being to cause Sage to recognise that they need to be included on a VAT return.
In other circumstances, where dealing with transactions in prior years, I'd agree with you entirely.
As an afterthought, the journal suggestion Beverley made could actually trigger alarm bells at HMRC, and therefore an inspection, since it would have been to both debit and credit the sales tax control account (one side T9, to counter the VAT that's been posted as T9, the other side T1 to get it on the VAT return). Doing this would result in the next return showing output VAT that's "a touch more" than 20% of the net outputs.
This could, of course, be avoided by doing the same journal but for the net amount in the nominal code for sales - so that the relevant net amount is also reflected in the net outputs - and now you have two journals, doubling the chances of...
...posting the journal being the wrong way around - the T1 element being the debit instead of the credit. (Who amongst us hasn't done a journal the wrong way around before now? I should imagine it would be an even easier mistake to make if both sides are to the same account!) That would royally mess things up because of the way Sage handles journals for the VAT return. (All debits that are in scope are inputs, all credits that are in scope are outputs). Just a thought. :)
-- Edited by VinceH on Wednesday 29th of May 2013 08:29:17 PM
-- Edited by VinceH on Wednesday 29th of May 2013 08:39:50 PM
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Vince M Hudd - Soft Rock Software
(I only came here looking for fellow apiarists...)
thank you both for your input it has been really helpful, I think I would just change the codes it seems to be the easiest and less messy, the last thing I want is to raise alarm bells with HMRC. And since it is only affecting the balance sheet I'm not that worried.
thank you both for your input it has been really helpful, I think I would just change the codes it seems to be the easiest and less messy, the last thing I want is to raise alarm bells with HMRC. And since it is only affecting the balance sheet I'm not that worried.
I slightly disagree with Vince again, sorry, Vince.
1. You don't have to post the journal for the sales in order to file correct VAT and not to trigger any alarm of HMRC.
The net sales which goes to Box 6 of VAT return includes not only standard rated sales.
2. If the difference in the output VAT identified by Beverly has not been reported in prior period VAT returns she needs to report that amount in any case. The only thing here to consider is whether the amount is within the threshold under which it is allowed to include that omission from previous period in the current VAT return.
3. However, if I understood you correctly, Beverly, the VAT amounts were entered manually and thus there was no output VAT omitted in previous returns? In this case, I agree that change of the tax codes could help to reconcile Sage generated VAT return to the return you need to file, provided that the change of the tax codes will not affect the accounts in any other way.
Lastly, the amounts in VAT return filed with HMRC do not have to be exactly the same as in the VAT return generated by Sage.
I never aim to completely agree with VAT return generated by a software. The main thing is to reconcile the VAT and to file correct return.
No they have not been picked up previously my client wouldn't know how to do that anyway. but neither has the accountant picked up on it - after running 2 year ends!!
I slightly disagree with Vince again, sorry, Vince.
No worries.
1. You don't have to post the journal for the sales in order to file correct VAT and not to trigger any alarm of HMRC.
The net sales which goes to Box 6 of VAT return includes not only standard rated sales.
Correct, but this journal won't increase the net outputs, so that the outputs VAT is less than 20% of the net outputs (which would be the case of box 6 contained both zero and standard rate sales) - it would do exactly the opposite; increase the outputs VAT so that it is *significantly more* than 20% of the net outputs.
Or, to use randomly plucked from the air (except for the adjustment amount, which I'll take from Beverley's original post):
The VAT return currently shows (say) £150,000 as net outputs, and £30,000 outputs tax.
£21,507 is journalled both to and from 2200, the sales tax control account, with the debit as T9 and the credit as T1, so that it's picked up on the VAT return.
The VAT return now shows £150,000 as the net outputs, and £51,507 output tax.
In other words, as I said, the outputs tax is now significantly more than 20% of the net. And I've had enough conversations with VAT inspectors over the years to be damned sure that sort of thing does tend to trigger inspections.
If you were reducing the VAT, then fair enough - because then the fact that the net might include zero rated stuff would reasonably cover that the VAT is less than 20% of the net. (Though in this case, it would be a £21K drop, so it's still a bit too significant for my tastes!)
2. If the difference in the output VAT identified by Beverly has not been reported in prior period VAT returns she needs to report that amount in any case. The only thing here to consider is whether the amount is within the threshold under which it is allowed to include that omission from previous period in the current VAT return.
Oh aye, in this case it's over the threshold - which IIRC is about £10K. Good point.
3. However, if I understood you correctly, Beverly, the VAT amounts were entered manually and thus there was no output VAT omitted in previous returns? In this case, I agree that change of the tax codes could help to reconcile Sage generated VAT return to the return you need to file, provided that the change of the tax codes will not affect the accounts in any other way.
Er, no, my understanding of what Beverley said is that invoices were entered with a VAT element, which has therefore gone into the sales tax control account, but with the tax code set to T9, which means Sage will have ignored those transactions completely when producing VAT returns.
Changing the tax codes will serve two purposes:
It will cause Sage to pick up those transactions for the next return, so that the VAT element is included in the outputs.
It will help reconcile the returns against the nominal account as a result of #1
One is a logical consequence of the other.
Lastly, the amounts in VAT return filed with HMRC do not have to be exactly the same as in the VAT return generated by Sage.
Ugh! Technically, true, but how untidy!
I never aim to completely agree with VAT return generated by a software. The main thing is to reconcile the VAT and to file correct return.
And to get the software showing the right figures, so that everything is neat and tidy!
Otherwise: Ugh! Yeuck!
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Vince M Hudd - Soft Rock Software
(I only came here looking for fellow apiarists...)
Thanks guys I'm really glad I put this post on the response has been great. Can I through In another question - the accountant ran a vat return at the year end but didn't reconcile it, he then compared it to the year end TB and then asked me to put through an adj to balance the accounts?? Question is why would he run a vat return but not reconcile it, it seems a pointless exercise if he wasn't prepared to ask why the difference is there or investigate it himself??
I sometimes get very frustrated with accountants, when they prefer to put in balancing figures rather then find the problem and correct it properly.....then again I could be wrong in my thinking in this case :)
When the accounts are sent into your accountants they should prepare a reconcilaition between the sales recorded on the vat returns and the final sales figure on th P+L. It is a must with every vat registered job.
Your accountant should pick up the error and advise you accordingly.
It is important that the accountant at the year end reconciles the vat and to know why the sales on the vat returns do not agree to the sales on the P+L. If your accountant does not do this I would suggest changing to another one:)
And to get the software showing the right figures, so that everything is neat and tidy!
Otherwise: Ugh! Yeuck!
The point I was trying to make(maybe I was not clear enough): Sage or any other package should serve you to prepare your accounts, and not other way around.
I agree that it would be ideal to keep your records right in your software at all times, but what is more important is to make sure that we report correct figures on the actual statutory returns. I am sure it is not the 1st time and not the last time when they select incorrect VAT codes and hence the Sage VAT return will give incorrect figures again and again. As long as you can reconcile the VAT and put it right in the return that what matters. It is not being untidy. It is about focusing on the important things.
If you make any changes in the past transactions whether it is just tax codes or something else this undermines the integrity of your accounts:
any adjustments you need to make about past transaction should be made in the current period.
If you have to declare the VAT that has not been reported anyway, what is the point in changing the tax codes in the past?
I don't know what exactly Beverley's situation with the VAT returns filed in the past.
I would go back and reconciled what has been filed and what still needs to be reported.
"The point I was trying to make(maybe I was not clear enough): Sage or any other package should serve you to prepare your accounts, and not other way around."
At no point have I suggested things should be the other way around! That's not what I meant by getting the software to show the right figures so it's neat and tidy.
"I agree that it would be ideal to keep your records right in your software at all times, but what is more important is to make sure that we report correct figures on the actual statutory returns."
Quite so, and getting the figures right in the software means you "report correct figures on the actual statutory returns" if you're using software that can handle the submission for you. (Hello Sage *waves*).
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Vince M Hudd - Soft Rock Software
(I only came here looking for fellow apiarists...)
Quite so, and getting the figures right in the software means you "report correct figures on the actual statutory returns" if you're using software that can handle the submission for you. (Hello Sage *waves*).
No software can produce accurate reporting for you if you don't have accounting knowledge.
I can understand your position as a software provider. I assume you are a software provider.
Proficient Sage user does not equal to a competent accountant, but a competent accountant can produce accurate accounts without Sage.
"No software can produce accurate reporting for you if you don't have accounting knowledge." "Proficient Sage user does not equal to a competent accountant, but a competent accountant can produce accurate accounts without Sage"
Those two comments are countering arguments I have not made and, as such, they are straw man arguments and don't deserve a proper response.
"I can understand your position as a software provider. I assume you are a software provider."
Not in the context of this forum, no. In the context of this forum I am someone who has worked in accounts and bookkeeping for nearly thirty years.
Interestingly, when I first introduced myself on the forum, I did say that trading under the name Soft Rock Software sometimes threw people.
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Vince M Hudd - Soft Rock Software
(I only came here looking for fellow apiarists...)
Like any book-keeping software the information coming out is only as good as the info being put in.
Knowingly putting T9 for a batch sales invoice that does have vat is bad.
However, I'm not impressed with sage that if I decide to change a nominal code I've used on a bank payment, that has previously been included on a vat return, sage corrects it by including a bank receipt as the correction and a new bank payment. Result being that on my next vat return sage will over-state my outputs by what is an inputs entry. So for me I would include the correct figures when e-filing the vat return , not the outputs/inputs figures that sage told me. Easily fixed when in the know.
It is so important to understand your software and know what you expect from the end result.
I used to do a book-keeping job for which no journals were included related to sales, and no sales were outside the scope. I got into the habit of printing a year to date tb when preparing the quarterly vat ( and keeping it !). All I needed to do was deduct the previous quarters sales from that showing on the current TB and it should agree to the sage vat return ( as long as no sales of fixed assets). It was just a quick way to make sure all sales were on the return, and indeed posted to the correct codes.......:).
-- Edited by Anniesplace on Saturday 8th of June 2013 12:33:21 PM
-- Edited by Anniesplace on Saturday 8th of June 2013 12:35:52 PM
-- Edited by Anniesplace on Saturday 8th of June 2013 12:54:09 PM
However, I'm not impressed with sage that if I decide to change a nominal code I've used on a bank payment, that has previously been included on a vat return, sage corrects it by including a bank receipt as the correction and a new bank payment. Result being that on my next vat return sage will over-state my outputs by what is an inputs entry. So for me I would include the correct figures when e-filing the vat return , not the outputs/inputs figures that sage told me. Easily fixed when in the know.
I totally agree with this, it annoys me too. I usually post purchase credits and bank refunds to correct items where a correction would make this happen.
I dont know why, but I have never used a journal to correct anything with VAT included. I am not sure its because when I started using Sage, there was no facility to do this... or if I had a bad experience with it.. I may have to come out from that dark corner and have a go! :)
