Vat liability Account - (Sage)

[gemma_cox]

My company has recently taken the books in house. When posting the opening balances i noticed that the Vat liability account has a debit balance. I then noticed a payment for the VAT went out after the opening balance making the liability account a bigger debit. I'm slightly confused as i thought the Vat liability account was meant to hold the amount due and subsiquently the payment cleared that account once enterred. But when i asked the accountants (who previously did the books) they told me that the Sales Tax CA less the Purchase CA less the Vat Liability account would equal the amount due. Wouldn't this mean the Vat liability account would keep increasing each quarter? Slightly confused here i can't seem to grasp the logic...

 

[AFabius]

Hi Gemma,

There are three accounts on Sage. Suggest you refer this to your company's accountants. It is part of the End-of-Year tidy-up procedures.

Regards

Arnie Fabius
Bookkeeping Connections Group

 

[gemma_cox]

Hi,

Many thanks for your reply. I had already referred to the accountants and they explained that the three accounts were fine and it all equalled to the amount to be paid (but still doesn't explain the debit). Our year end is in March and the problem is that i was given opening balances to take the books in house and so i cannot see what the debit is made up of and the reason it is on the account still.

 

[PS Business Solutions]

When you file the VAT return each quarter, you need to do a journal in Sage to create the liability in the liability account.

DR Sales VAT 2200
CR Purchase VAT 2201
CR VAT Liability 2202 (or DR if a refund is due)

Then when you pay the VAT liability, CR Bank, DR VAT liability 2202 to clear the account

It could be that one of the previous VAT Returns was not journalled?

 

[gemma_cox]

Thats exactly what i thought and this is what i told the accountant but they came back with this..

To calculate the VAT liability you need to view the balances on the Sales Tax control account, purchase tax control account and the VAT liability account
Sales Tax CA 168,014.74 Cr
Purchase Tax CA 59,424.05 Dr
VAT Liability 69,579.65 Dr

VAT Due £39,011.04[/font]


So of course this flagged my attention when i noticed that the Vat liability would then increase to have a Debit balance of £108,590.69

Many thanks for your message. I think i may go back to our accountants now i have confirmation that i'm not going crazy.

 

[DavidT]

Looking at it, they may not be doing the journal for each return as PS Business Solutions outlines.

The total of the 3 accounts is the total VAT liability, but the 2202 VAT Liability Account should really only be the amount due (or reclaimable) at that time.

Just have a look at the last couple of returns and check the 2202 account to see if the amount due has been posted there for the returns. If not, just do these missing journals and it should start to clear the accounts up. I expect the payments have been posted there which is why the Dr is showing.

Through the VAT returns & Sage's reconcilation system, it will all work fine without the return journals but it can get a little messy as you can see. Just laziness really.

 

[gemma_cox]

I explained all of this to my accountant who is telling me that the VAT liability account only has the payment going in and no other journals are needed to be made.

 

[gemma_cox]

This is the response from my accountant;

You don't actually need to enter any journals to do with the VAT. These are all control accounts. The sales tax CA shows the cumulative VAT on sales invoices and similarly the purchase tax CA cumulative VAT on purchases. VAT is allocated to these accounts when you enter invoices in to the sales or purchases ledger.

The VAT liability account is where payments to HMRC are allocated. So once you have paid your present obligation the double entry would be

Dr VAT Liability
Cr Bank

No other journals are needed for these accounts.

 

[Alpha]

I explained all of this to my accountant who is telling me that the VAT liability account only has the payment going in and no other journals are needed to be made.

Sorry Gemma but If your accountant said that I don't think he has a clue as to how sage works.

As per PS once you have performed the vat reconciliation process you journal the sales and purchase ledger vat into the vat liability control. When you have paid the vat over this account should then be zero.

Just out of interest have you tried running the vat calculation for the next period?
If you get a report saying that there are hundreds of entries prior to the period then they havent used the vat reconciliation process either (Another common mistake I've come across by those who haven't got a clue)

 

[gemma_cox]

Exactly what i think. Whats worrying me is that this firm is a big firm in London and should know what they're doing!

This is exactly as i understand it and i am only AAT qualified and our Accountant is ACCA!

The trouble is that we haven't got any prior 1/11 entries due to being sent opening balances rather than a backup.

 

[Alpha]

Gemma

Sorry my post was being prepared before your last one.

If you have only been given balances to re enter then what they have given you is correct.

Are you continuing to use Sage (and the same version as the accountants?)

If not that could be the reason why you have just been given opening balances which isn't ideal as you will have to either enter debtors and creditors detail before entering the trial balance or very carefully control the manual allocation of cash received/paid to items outstanding pre balance sheet.

Ideally you will have the same(or higher) version of sage in which case I would insist on having a backup and restoring it to your copy.

By all means get in touch if you need any further help or clarification either by PM or e mail

 

[gemma_cox]

I have been given opening balances because their accounts show splits of salarys and my director wanted to keep that private. So this is why i have been given Opening balances.

The accountant sent over a breakdown of the VAt liability account and all it included are debits and no credits at all.

We have 2008 version and so do they. But our previous work they did on 2007 version.

Many thanks

 

[Watis]

In addition to what Alpha says, and looking ahead:

If you're starting from opening balances part way through your accounting year, then any analysis of the full year's accounts for business or auditing purposes is going to require access to and merging of two sets of data. That's time consuming and error-prone.

Is there an overriding reason for not loading the backup and carrying on from where the Accountants stopped - for the reasons Alpha listed?

And if you're changing Accountants at this time, you'll need to recover your data in any case.

Watis

 

[gemma_cox]

Hi,

This is due to Salary information being kept discreet. Please see my last response.

We are not changin our accountants.

Thanks

 

[gemma_cox]

Another response from my Accountant

The VAT liability account is not a holding account, it is used for the offset of the double entry in regards to the payment to HMRC. It is only used to record the payments made, or alternatively received from HMRC
These accounts do not get reduced to zero but instead accumulate as VAT is recorded.

The credit entry for the VAT liability account is made in the bank.

I can confirm that the payment you made for the last quarter was correct.

I hope this explanation makes sense. Please do contact me should you want further clarification.

 

[Alpha]

Another response from my Accountant

The VAT liability account is not a holding account, it is used for the offset of the double entry in regards to the payment to HMRC. It is only used to record the payments made, or alternatively received from HMRC
These accounts do not get reduced to zero but instead accumulate as VAT is recorded.

The credit entry for the VAT liability account is made in the bank.

I can confirm that the payment you made for the last quarter was correct.

I hope this explanation makes sense. Please do contact me should you want further clarification.

Gemma

we could go round in circles for a long time with this especially as was shown from the initial posts, we do not have available the full facts.

The standard way to control vat within Sage(under standard vat)

The account 2202 is a control account
Sales ledger vat entries are recorded in 2200
Purchase ledger vat entries are recorded in 2201

The balances of these accounts as at the end of a vat period are transferred to the vat liability account 2202.

When you pay the vat liability this is credited to the bank and debited to vat liability account (2202) or the opposite way round if you are due a refund.

If they are unaware of the standard way of operating vat with sage then they(and you) can either read the manual or use the help system.

Note under cash accounting the process is slightly different but the balances are still not left in accounts 2200 and 2201.


I'm afraid this is all that we can say on this matter the rest is really between you and your accountants

 

[DavidT]

Straight from the Sage Manual on clearing the VAT accounts:

Clearing Your VAT Control Accounts​

After you have reconciled your Sage Line 50 VAT Return, we recommend you transfer the values
from your VAT on Sales and VAT on Purchases control accounts for the current VAT period to
your VAT Liability nominal account.
We strongly recommend that when you are satisfied that the balance of the VAT control
accounts are accurate, you make the accounts zero as at the end of the month or quarter. This
way, it will always be zero at the beginning of the following month, so if you do make a mistake
you will only have to check back through one month’s transactions.
You can clear your VAT Control accounts in two ways. Firstly, by using the VAT Transfer Wizard.
To start the wizard, open the modules menu, select wizards and then select VAT Transfer
Wizard. Secondly, by manually posting journals. Either process will achieve the same result.
For example:
If the balance on your VAT accounts are as follows:
2200 VAT in Sales 5000 Cr
2201 VAT on Purchases 3500 Dr
The VAT Transfer Wizard would post the following journals (or you would do it manually):
2200 VAT on Sales 5000 Dr
2202 VAT Liability Account 5000 Cr
2201 VAT on Purchases 3500 Cr
2202 VAT Liability Account 3500 Dr
The value you transfer to the VAT Liability account is cleared either when you make a payment
to your local tax office or when you receive a refund from them (see the notes in the following
section).​

Note: All the above transactions would be posted with the non-vatable tax code (T9 by default).

 

[Sophs-books]

I have taken over the books from the accountant, and they have given me a pile of reports, period trial balance, profit and loss and balance sheet.
I have put in all the outstanding balances, however im a little confused.
I have to send in the Vat Return for this month, and i started the books on 1st July, how do i go about generating a vat return, because the accountant did the previous months?

 

[DavidT]

You should be able to do it from the figures in there.

I'd first confirm the previous return and the VAT balances (Input, Output) at that date. If there are any differences, you should identify these and treat as needed (eg account for in this return).

From there the sales, purchases and VAT since should be there to include on the current return.

If the trade is comparable to the previous period, you should expect the same for the return so at least it's just one quick indication you're on the right track.

 

[HAZEL B]

Hi

So that you can process the VAT in the correct manner from now on I suggest you create an account next to the VAT liability account called opening vat. Post the three VAT balances into it and any payment or receipt relating to the last return done by the Accountants. The entries should balance out - if they don't you will know that this is not something you have done wrong.

You can then operate the VAT correctly, making sure you reconcile the transactions and do the journal each period.

Good luck

Hazel

 

[hendyphilhendy]

It does appear to me that the figures are still correct. If you journal out the balances given they equal the liability.

It is merely an issue that the accountants haven't used the reconciliation function within Sage. I have often in the past received data from a client without this function being used. It doesn't necessarily mean it is wrong! As long as the total of the three accounts equals your vat liability per the return it should be ok.

 

[David Griffiths]

Nobody has mentioned the basis of the VAT Returns.

To say that the accounts will balance presumes that the VAT return is on the invoice basis. If the cash basis is being used, I would expect there to be balances left in both the input and output tax accounts equivalent to those supplier and customer balances that include VAT.

Given that for most smaller non-retail businesses the cash basis is generally more common, that's an important factor.

For the OP, the best way forward is to ask the accountants for their confirmation of the VAT return figures for the two months that they did, and then calculate your own figures for the third month to add to them.

If you are using the cash basis, make sure that the Sage parameters are correctly set.

 

[RJE81]

Anyone know what happens if you delete a transaction after it has been included in a VAT return?

Does it get corrected by Sage in the next VAT return? Or is a manual adjustment required?

I have a set of accounts and the purchases VAT and sales vat don't come back to 0, even though the journals described earlier have been posted. Most worryingly the sales VAT is showing as a debit balance?

Company is not cash accounting.

 

[johndon68]

Sage won't let you delete a VAT Reconciled transaction as such, it will only let you reverse it. So, if you try to delete a reconciled invoice, a credit note, with exactly the same details as the invoice will be created which will then appear on the next VAT Return.

John

 

[RJE81]

Must be something else then.

The situation is this - Liability account is coming back to 0, only transactions in the Purchases account and Sales account are the tax amounts and the quarterly VAT journals, but the quarterly VAT journals are not clearing these accounts (when organised by transaction #) Is there a way to check if the quarterly journals are being generated by a sage wizzard or manually?

Alternative I suppose is that they were marked as reconciled after a transaction was deleted. So, VAT return, Journal, Delete, Mark as Recd?

 

[Zuzana]

Hi everyone.

I am wondering, if you can help me. I am new here and for some reason I am not allowed to start a new Threads. I do bookkeeping for a company that chose to do Flat rate VAT scheme. We have just started using Sage Instant Accounts and I do not know what to do with the VAT accounts as they are not going to match the VAT paid. Any ideas?
Many thanks

 

[MyAccountantOnline]

Hi everyone.

I am wondering, if you can help me. I am new here and for some reason I am not allowed to start a new Threads. I do bookkeeping for a company that chose to do Flat rate VAT scheme. We have just started using Sage Instant Accounts and I do not know what to do with the VAT accounts as they are not going to match the VAT paid. Any ideas?
Many thanks

Thanks for both of your PM's.

Whilst I am very happy to give general pointers and tips on the public forum, and regularly do so, I dont give specific tax advice for free. This is only given to paying clients.

 

[David Griffiths]

Thanks for both of your PM's.

I deleted the PM sent to me. I wonder how many others were sent.

 

[MyAccountantOnline]

I deleted the PM sent to me. I wonder how many others were sent.

Quite a few I suspect

 

[weebly_one]

I has one too!

 

[weebly_one]

If you have Sage Cover Sage have very good knowledgebase articles about how to deal with Flat Rate scheme, and the next version of Instant Accounts will deal with the system fully.

Hi everyone.

I am wondering, if you can help me. I am new here and for some reason I am not allowed to start a new Threads. I do bookkeeping for a company that chose to do Flat rate VAT scheme. We have just started using Sage Instant Accounts and I do not know what to do with the VAT accounts as they are not going to match the VAT paid. Any ideas?
Many thanks