"If there are bad debts is it correct that no adjustment is needed for the box 6 figure as the supply has taken place, but if it was a sales return box 6 would be amended usually by the software automatically if processed correctly?"

Correct. A sales return ultimately means there has been no sale - so the outputs figures are reduced. Whereas for a bad debt, the sale has taken place and it's never going to be paid - so the bad debt is a cost, and increases the inputs.

The end result is the same, though. :(

"Year end VAT reconciliation- prove my figures for each box on the return, run reports for each VAT box, if they match ace, if not search and amend where necessary for instance where sales have been coded as zero or exempt, go in and Dr sales Cr Sales VAT."

Took me a while to understand that - you mean where sales have been miscoded. There are a number of ways that can be corrected, and how you do it may depend on the software in use. The phrasing you've used (to debit sales and credit sales VAT - i.e to reduce the net outputs by the VAT amount, and increase the VAT itself) is the goal, but suggests you might be thinking of doing it with a journal - in which case, take care that the software will treat both sides of the journal correctly when it comes to VAT.

The easier approach - again, if the software allows it - would be to modify the original transaction, so that the software treats it correctly for the VAT return.

"Is the VAT reconciliation similar in appearance to a bank rec? VAT Box 1 = X, figures per report = X - box 2 etc etc is that the sort of design?"

Yes. No. It depends.

What it depends on is the VAT scheme you are on - with the most significant one being the cash basis.

Different software works... differently... but the principal is that when you enter a transaction with VAT, that VAT is put in a separate nominal account, waiting to be mopped up on a VAT return. With the cash basis in use, though, that VAT is only mopped up if there is a payment or a receipt involved.

If (for example) you have a sales invoice for £1000 + £200 VAT that hasn't been paid by the end of the VAT period, that £200 VAT isn't included on the return - but it is (or should be) in the nominal account used to look after outputs VAT. So when you run the VAT return, if you look at the trial balance as at the same date, the outputs VAT on the trial balance will differ from the outputs VAT on the VAT return - if it was just that one invoice, there will be £200 be more on the TB than on the return.

A VAT reconciliation, therefore, enables you to prove the figures.

In theory, the outputs figure on the return plus 1/6 of the sales ledger balance should be the amount shown on the outputs VAT nominal as at the same date as the return, assuming all balances include VAT. If, for whatever reason, any don't, you need to take that into account.

The same applies to the inputs VAT and the purchase ledger balance - but here, it's almost certain that not all balances will include VAT.

If your VAT is on an invoice basis, then it becomes a whole lot simpler: The outputs VAT on the return should match the outputs VAT on the TB, and the inputs VAT on the return should match the inputs VAT on the TB.

In general - but not without exceptions.

 

It's better, if possible, to get the opening balances to reflect on the next VAT return organically. And, again, how you do this depends on the VAT scheme in use.

Ideally, you want to take over at a magic date - year end is best, but coinciding with a VAT quarter is a good second best.

Then how you do it depends on the VAT scheme in use.

For example, if the VAT is being operated cash basis, the input/output tax balances should be based on the outstanding invoices in the sales and purchase ledgers (as I mentioned above); I'd get the sales and purchase ledger balances right by keying the individual invoices that are outstanding, with the VAT as it should be. So the end result will be a balance in the two VAT accounts that will be picked up on the next VAT return if those invoices have been paid in the interim period.

On the other hand, if it's an invoice basis, then ideally there should be nothing in the input/output accounts, and I'd key the outstanding invoices gross, and out of scope (because they've been included on a previous return).

In both cases, the nominal account the invoices - sales and purchases - would be posted to would be an 'opening balances' account, which would be cleared down when the rest of the opening balances are input.

To take a very simple example and look at it both ways, the client has just two sales invoices outstanding - one for £500 + VAT and one for £1000 + VAT (total £1800 inclusive).

If the company is on an invoice basis, the output balance should be zero. To set up the balances, the two invoices are posted as £600 and £1200 with no VAT (tax code - out of scope) to whatever the opening balances account is - let's say 9997. The end result is a sales ledger balance of £1800, and still no outputs balance; as it should be.

If the company is on a cash basis, the outputs VAT should show credit balance of £300. The sales invoices are posted (again to 9997), but this time with the VAT as it should be - so £500 + £100 VAT (T1), and £1000 + £200 VAT (T1). The end result is a sales ledger balance of £1800, and an outputs tax balance of £300. Again, as it should be - and because the company is on a cash basis, when those invoices are paid, the VAT will be picked up automatically for the next return.

Unfortunately, it's never quite as simple as that - you'll find situations where (for example) there are invoices posted late, after the VAT return was posted, or other transactions posted late that will affect things, such as bank payments/receipts. Or the year end will be on one date, and the VAT quarter will be offset by a month either way. You need to look at new clients on a case by case basis, and use your own knowledge and experience to gauge the best approach to use - and if you're unsure (especially if you lack the experience of some of us) ask for advice on the forum, as you've done on a more theoretical basis here.

One piece of advice I can give that will help ensure such changeovers are tidy, though, is this:

Try to start off with the client's existing system - especially if you think the figures may not be as 'tidy' as they could be. That way, if you're going to change the software in use, and therefore need to transfer the balances from the old system to the new, you can do so on your own terms; you can create a changeover point that's as neat and tidy as you need it to be.

Yes, that's exactly what I mean by organically.

Don't worry about asking basic questions - there are people on this forum at all manner of different stages in their careers in this field, including people still studying and learning, or just starting out. We all just started out at some point, even those of us who have been doing it for donkey's years.