VAT has been confusing businesses for a long time. While most financial controllers know the specific wrinkles of their products and services differentiating between Zero Rated, Exempt, Out of Scope and EC VAT rates has caused problems for many years.
Out of necessity the VAT man has turned a blind eye, so long as the overall VAT liability has been correct. As long as Box 5 Net VAT to be paid to HMRC is correct, he has not worried too much about Boxes 6 and 7 for the overall Net Amounts and even less about EC Sales and Purchases in Boxes 8 and 9. Calculating the correct Reverse Charge Amount or Acquisition Tax has largely been ignored because few people understand it properly and even fewer know why there should be different treatments for Goods & Services.
If there was ever a candidate for tax simplification, VAT must be at the top of the list!
Brexit Changes
The Post-Brexit VAT landscape continues to change bringing unwelcome new challenges to businesses that import and export to and from the EC and adding further complexities to the labyrinthine VAT structure.
Many businesses have had to resort to using specialists to prepare their VAT returns to cope with the new legislation, adding cost and complexity to their financial processes and making it much harder to ensure that everything reconciles with the core accounting data.
The new VAT processes rules have deterred some business with trading with Northern Ireland or the EC because the costs of compliance are too high.
Abacus has been designed to manage the new rules within the core software with the reassurance of flexibility to add more VAT codes as the schemes are modified and refined.
When designing the Abacus VAT structure for the UK we considered the following:
- How has the operation of VAT changed after Brexit?
- How to supply good and services to Northern Ireland?
- How to supply goods and services from Northern Ireland back to the mainland, to the EC and the Rest of the World including EC Sales Reports?
- What are the different treatments for goods and services?
- How to deal with postponed (PIVA) and non-postponed VAT, including C79s?
- How do you implement Non-Union One Stop Shop and the Importer One Stop Shop?
- Can the application be used in other English speaking European nations using configurable VAT?
The situation for Ireland has not changed inherently: the UK simply becomes part of the Rest of the World rather than the EC.
What are the measures that Abacus Financials has taken to keep up with the latest VAT changes?
Abacus has covered all the mainstream VAT options with a flexible coding structure which allows for future changes. Each scenario is covered with a relevant Sales or Purchase VAT Code. These codes can be tailored to your own business changing the terminology for example to suit your own preferences.
Sales and Purchase Invoices are linked to Output and Input VAT accounts respectively for clarity with the option to complete a quarterly Manual Journal once you submit your VAT return to contra out the return amounts: a bit old school, but we prefer it!
If certain VAT codes don’t apply to your business, by simply de-activating them they are removed from the available options on your entry screens simplifying data entry and reducing coding errors.
Abacus Financials has already been configured to deal with the new VAT schemes with standard r VAT codes for OSS, IOSS, Reverse Charge, Acquisition Tax Domestic Reverse Charge, C79, and PIVA Reverse Charge. These codes ensure that these new rules are properly reflected in all the VAT return boxes.
If you wish to know more about EC Sales report, download the application here
Along with having out of the box audit reports, users can create their own Salesforce standard reports for PIVA purchases, Non-Union and Union Stop Shop and Importer.
Adjusting Your VAT Return
Abacus allows for adjustments to the VAT return while maintaining a full and complete audit trail using the established core transactions: Sales and Purchase Invoices and Credits. VAT amounts can be adjusted on the face of the transactions to resolve minor rounding differences.
We suggest that larger VAT adjustments are done through the relevant Transaction type: sales or purchase and using the relevant code: X Is for transactions outside the scope of the VAT return, so any Net or VAT changes will not appear on the VAT return. P99 or S99 are for larger VAT adjustments which will affect the relevant VAT and Purchase and Sale boxes. Using these codes has the key advantage of segregating them from operational transactions and giving them greater visibility. Any workings to support adjustments can be attached to the transaction as a file to provide a permanent audit trail.
Completing Your VAT Returns
Abacus has a 3 stage VAT process which allows you to submit your VAT return via Abacus or using bridging software if you need to prepare a consolidated return. Each stage in the process is coloured for easy identification
- Draft is grey
- Finalised is turquoise
- Submitted to HMRC (optional) is green
First stage is producing a Draft VAT Return which can be reviewed for correct codes. The Detailed Audit Report is designed so that the calculations of each of the VAT boxes is simple to follow and any coding errors can easily be found and corrected.
Once the Draft Report is finalised and any adjustments have been applied, the VAT Return is Finalized. This locks all the Transactions included in the report and prevents further editing to them. If you are submitting your VAT Return via 3rd Party software, this report will form the basis for that submission.
Otherwise, you can submit your return directly to HMRC straight from Abacus.
Submitting Your VAT Returns with MTD
The first stage is to register Abacus as your VAT software via your Government Gateway HMRC log in. Once you have registered Abacus there, you need to link your individual Abacus Companies with a security token supplied by HMRC. This is a simple process that you will need to complete every 18 months.
Once you are registered, submitting your VAT return is a simple API process which is started when you hit the Submit button and follows the familiar HMRC steps.
Managing Your HMRC Account
Staying inside Abacus you can manage your HMRC Account to see you account status, previous returns, historical payments and future obligations all in one place.
Abacus Financials is the first cloud accounting app to implement all the post Brexit VAT changes with little or no additional configuration. The monthly or quarterly VAT process is easy and reliable and any adjustments are captured within the system. Segregated Input and Output VAT Ledgers help businesses get a clear audit trial for the VAT obligations.
Abacus simplifies and de-stresses the VAT process with straightforward processes that are easy to follow.
For a demo, contact us here.