I've been through this before but really need some help.
We receive payments on account from clients on a monthly basis to cover estimated fees for work to be carried out during the year. We invoice when we do the work so sometimes the client is in credit and sometimes not.
On Sage it's not an issue as when we receive the money we pay the VAT (Cash accounting) even when they are in credit. On Xero there is a problem whereby it doesn't automatically pick up the VAT on these overpayments until it is allocated against an invoice.
Prepayments are given an invoice number which is crazy!
All we want is this:
Receive money in advance, show this as a credit on the client account, pay the VAT to customs on this banking.
Not show this as a sale in the accounts but show as a sale for the VAT return.
Not give this overpayment an invoice number as it is not a sale.
Is there anyway to do this in XERO as otherwise to my mind XERO doesn't operate the cash accounting for VAT correctly. In sage when receiving the money it asks if VAT should be allocated to the banking which to me seems the obvious way to deal with it.
Last time I put a question similar to this up someone said that XERO does it correctly but SAGE does it wrong- I don't agree.