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QuickBooks VAT Cash Accounting & Advance Payments

Advance payments do not report on VAT return at the correct time for VAT Cash Accounting

Is anyone aware that the VAT Cash Accounting in QuickBooks Online doesn’t actually record the VAT at the right time (i.e. for HMRC Compliance) with on-account payments?

We have a client that receives a lot of up-front payments from their customers for many months, then when the customers invoice is raised, the payments are applied to it to reconcile that customers account. In QBO that is set up with VAT Cash Accounting, the VAT does not get put onto the VAT return until the point that the invoice is raised, and payment applied to it!

The VAT should, of course, get reported at the point of payment – but when receiving a payment into an Accounts Receivable account, QBO doesn’t let you do this. I suppose one solution for my clients file would be to invoice monthly – but this is not always convenient – and being a very dominant accounting software package – I’m gobsmacked that this happens.

As a workaround to be HMRC compliant, we are now having to calculate all ‘unapplied payments’ at every VAT quarter, and add in the VAT with an adjustment, then make sure we reverse it out again later, when the payments are applied in QBO, so that our client doesn’t pay the VAT twice.

Does anyone else have a better work around than this and is anyone else aware of this? (QuickBooks are, because I’ve asked them!) More importantly, knowing that QBO has now been approved for HMRCs MTD - does anyone know if HMRC are aware of this – and maybe just accept it?!


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By Matrix
10th Aug 2018 14:04

Your points may well be valid but surely the cash accounting scheme is to delay the payment of VAT which would otherwise be due under standard VAT accounting? Would the client be better off moving from the cash accounting scheme?

I don't do VAT returns on QB but use FreeAgent and Xero and expect they would have the same issue - I don't see how they would record the VAT on a cash basis for an invoice that has not yet been raised since all the sales and VAT are based on invoicing and not payments to customer accounts.

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10th Aug 2018 14:18

That's a good point about the client moving to standard! I haven't seen anything in the account as to why they would have elected for VAT Cash Accounting up to now.

The client imported from SAGE and that was set up with VAT Cash and payments on account being VAT at standard rate. (this can be chosen on set up apparently), so thats how this has come to light - because of the crossover.

I would be interested to know if Xero and FreeAgent are the same.

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27th Sep 2018 14:24

I'm hoping to re-awaken this query, as we have inherited a client with exactly the same circumstances.
We have already decided to talk to the client about moving to accrual accounting, but in the meantime (and should this crop up again) , do we need to carry out the manual adjustment, or would HMRC accept the returns as Quickbooks produces them?

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