Clear the VAT amounts from ledger accounts
This explains what to do when you have amounts remaining in your VAT ledger accounts after you pay your VAT.
This may happen when you use reverse charge VAT.
What you need to know
When you enter a transaction with VAT, we update the VAT on Sales or VAT Purchases ledger accounts, depending on whether it is a sales or a purchase.
When you submit a VAT return, we transfer the amounts from VAT on Sales and VAT on purchases ledger accounts to the VAT Liability ledger account to tell you how much you owe to HMRC. The balance of the VAT on Sales and VAT on Purchases Ledger accounts is now zero.
When you pay your VAT return, we update the VAT liability ledger account with the amount of the payment. When you have fully paid your VAT, the balance of the VAT liability ledger account is zero.
When the VAT ledger accounts are not zero
There may be times when the balance of the VAT ledger accounts is not zero after paying your VAT return. This commonly happens when you use reverse charge VAT.
As you have paid your VAT, your want the VAT Liability ledger account to be zero, so your financial reports are accurate.
You can check this on the Nominal Activity report. Read about the Nominal Activity report.
If the VAT ledger accounts are not zero, then you may want to transfer the values to the correct the ledger accounts using a journal.
For example
After you fully pay your latest VAT return, your VAT Liability ledger account has £20 Debit value and the VAT on Sales has £20 credit value.
Create a journal to clear the VAT
Create a journal to transfer the amount from the VAT Liability ledger account to the VAT on Sales or VAT on Purchases ledger accounts.
Enter the opposite debits ad credits to the amounts on the nominal activity report.
Do not select the option to include this on your VAT return, as you have already declared these amounts.
- From Journals, choose New Journal.
- Choose the VAT on Sales or VAT on Purchases ledger account
- Enter the amount to clear the value as a debit or credit. This should be opposite the amount currently showing on the Nominal Activity report. In our example, we choose the VAT on Sales ledger account and enter 20 as a Debit.
- On the next row, choose the VAT liability ledger account.
- Enter the amount to clear the value as a debit or credit. This should be opposite the amount currently showing on the Nominal Activity report. In our example, we enter 20 as a Credit.
- If you have outstanding amounts in both VAT on Sales and VAT on Purchases, add an extra row. Don't forget the total debits must equal the total credits before you can Save.
