Sage – Reconciling VAT Nominal Accounts
For clients on invoice accounting it is normally a straightforward process to reconcile the VAT nominal account balances on Sage to the actual outstanding VAT liability. Simply run a VAT return from the date at which the last return was run to the date at which you wish to reconcile and include any unreconciled transactions which relate to previous periods. If there is an outstanding payment or refund for a previous VAT return this will also need to be taken into account by adding or deducting it from the amount in box 5. The box 5 figure and any adjustment should now agree to the combined balances on the Sales Tax Control Account (2200), Purchases Control Account (2201) and VAT Liability Account (usually 2202).
For clients using cash accounting the process is somewhat more complex. This is because when a sales invoice/credit or purchase invoice/credit is entered onto Sage the VAT amount will be posted to the VAT nominal accounts. However when the VAT Return is run only VAT relating to invoices actually reimbursed will be included on the return. This means the Sales Tax Control and Purchases Tax Control accounts include VAT on debtors and creditors which will not appearo n the VAT return until they have been paid.
In the case of cash accounting therefore the following method can be used;
Run a VAT return up to the date to which you wish to reconcile and adjust this figure for any outstanding payment or refund for previous VAT returns. Next calculate the VAT on Debtors and Creditors. If all outputs are the same VAT rating calculating the VAT on debtors is reasonably straightforward. For example if all sales are standard rated then apply the VAT fraction (7/47 at 17.5%) to the gross debtors figure to give the VAT element. If however debtors are a mix of VAT rates they may need to be gone through individually. Creditors may also need to be reviewed individually as these are likey to be a mix of VAT ratings. If you are clever enough you can design a nominal report to print off the debtors & creditors VAT in a matter of seconds.
Next add the VAT on Debtors figure to the box 5 figure and deduct the VAT on Creditors. The resulting figure should then agree to the combined balance on the three nominal VAT accounts.
I will add a post shortly of suggestions as to what to do if your VAT reconciliation doesn’t agree. In the meantime please feel free to contact me, Paul at M P Accountants Northamptonshire if you have any questions or need any further advice.