Starting VAT figure: mid-quarter (flat rate scheme)

If your FreeAgent start date is part-way through a VAT quarter, you'll need to add pre-start-date transactions to your VAT return.

Here's a workaround for this if you're using the VAT flat rate scheme. Start here if you're not using the flat rate scheme.

Let's take an example. If your VAT quarter ends on 30th June, but your FreeAgent start date is 1st May, then you'll need to enter some figures for VAT for April on to your VAT return.

1 Work out and post your VAT

Add up all the flat rate VAT you need to put on your return for the part of your quarter that came before your FreeAgent start date.

In my above example, that would be April's VAT.

Put these figures in as part of your opening balances. Here's how to work them out.

If you're invoice accounting for VAT

Add up all the invoices you issued dated in April, remembering to include the output VAT you actually charged to your customers. Multiply that by your flat rate percentage to get the figure that you need to add to your return for April. Let's say that came to £1,000. Put that as an opening balance, a credit entry, to code 819 VAT Charged.

Because you're using the flat rate scheme, you're unlikely to need to make any adjustments for input VAT that you can reclaim. If, though, you bought a large capital asset that cost you over £2,000 including VAT in April, take the VAT on that and put it into your accounts as an opening balance, a debit entry, to code 818 VAT Reclaimed.

If you're cash accounting for VAT

Add up all the money you received from customers in April, remembering to include the output VAT you actually charged to your customers. Multiply that by your flat rate percentage to get the figure that you need to add to your return for April. Let's say that came to £1,000. Put that as an opening balance, a credit entry, to code 819 VAT Charged.

Because you're using the flat rate scheme, you're unlikely to need to make any adjustments for input VAT that you can reclaim. If, though, you paid for a large capital asset that cost you over £2,000 including VAT in April, take the VAT on that and put it into your accounts as an opening balance, a debit entry, to code 818 VAT Reclaimed.

You may also still be waiting for your customers to pay you for invoices dated before your FreeAgent start date, and those invoices might have VAT on them, which you need to consider if you're cash accounting for VAT. When you're working this figure out, take the VAT from your invoices rather than your flat rate VAT, because FreeAgent will make the flat rate adjustments when your customers pay you. Let's say that came to £400. This figure needs to be entered into code 823 Deferred VAT as a credit entry as part of your opening balances. This figure won't appear on your VAT return, which is correct because you don't owe that VAT to HMRC until your customers have paid you.

Everyone

There's also likely to be an amount that you owed to HMRC from a previous quarter's VAT return.

In my example, that'd be the amount that you'll pay from March's VAT return. Let's say that was £300. Put that amount into code 817 VAT as part of your opening balances, as a credit entry, so with a minus sign in front of it.

If your accountant has given you one figure only

Your accountant may have given you only one figure for VAT to go into FreeAgent as part of your opening balances. If they have, then you'll need to speak to them and ask them to tell you how much of that figure should go into each of codes 817, 818 and 819.

2 Final adjustment - boxes 6 and 7

Before that VAT return can be filed, you'll need to adjust the figure in box 6 - and if you bought a large asset then you might need to adjust box 7 as well.

There's no way to do this in FreeAgent itself, so you'll need to take the figures from FreeAgent, work out the adjustment and then put the adjusted figures on to the return that you file.

When you prepare your next VAT return using FreeAgent, no adjustment to boxes 6 and 7 should be required so you'll be able to do this directly through FreeAgent.

How to work out the adjustments for boxes 6 and 7?

If you're invoice accounting for VAT

For the box 6 adjustment, add up the amounts you invoiced your customers for, excluding anything outside the scope of VAT, in the period between the beginning of your current quarter and your FreeAgent start date (April in the example), remembering that you must include the VAT you charged because you are on the flat rate scheme. Let's say that came to £6,700.

For the box 7 adjustment, add up the cost excluding VAT of any capital assets which cost you over £2,000 including VAT, which you were billed for in the period between the beginning of your current quarter and your FreeAgent start date (April in the example). Let's say that came to £5,000.

If you're cash accounting for VAT

For the box 6 adjustment, add up the amounts your customers paid you, excluding anything outside the scope of VAT, in the period between the beginning of your current quarter and your FreeAgent start date (April in the example), remembering that you must include the VAT you charged because you are on the flat rate scheme. Let's say that came to £6,700.

For the box 7 adjustment, add up the cost excluding VAT of any capital assets which cost you over £2,000 including VAT, which you paid for in the period between the beginning of your current quarter and your FreeAgent start date (April in the example). Let's say that came to £5,000.

For everyone

Take the figures that FreeAgent worked out for you for boxes 6 and 7. These will cover the rest of the quarter since your FreeAgent start date, so May and June in the example. Let's say that came to £10,000 in box 6 and £4,000 in box 7.

Now add the adjustments you've worked out. So box 6 will come to £16,700 and box 7 to £9,000 for the quarter.

When you fill in your VAT form, put in those adjusted figures (£16,700 and £9,000) into boxes 6 and 7.

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