Postponed VAT

What is Postponed VAT

Postponed VAT is the process of declaring and recovering import VAT on overseas purchases within the same VAT Return. This is very useful as having to pay the declared VAT on one Tax Return and then recover it on another, means that cash flow is restricted.

The different methods of handling Postponed VAT

There are two methods for handling Postponed VAT.

Method One

As default WinMan Cloud will not automatically post your Postponed VAT. If using this method then you will need to post the Postponed VAT using a Journal once you have received your statement (C79 certificate) from HMRC.

Method One Process

1. When the monthly statement is received from the HMRC, navigate to the ‘Journals’ module.
2. Click ‘New Journal’ to create a new journal header.
3. Add a Subject, Effective Date and Description to the journal header.
4. Click ‘Save’ to save the journal header.
5. Click the ‘+’ on the journal items section to add a journal item.
6. Set the GL Chart of Account as the VAT Control Account, enter a DEBIT value and set the ‘VAT Reporting’ option to Purchasing.
7. Click ‘Save’ to save the journal item and then click the ‘+’ to add the second journal item, or click ‘Save & Continue’ to save the journal item and leave the modal open to add the second journal item.
8. Again, set the GL Chart of Account as the VAT Control Account, enter a CREDIT value and set the ‘VAT Reporting’ option to Purchasing.
9. Click ‘Save’ to save the second journal item.
10. Click ‘Post’ to post the Journal.

Using this method the system will have zero effect on the General Ledger, as both sides point to the same GL Chart of Account. The sales and purchase values will appear in Boxes 1 and 4 respectively within the VAT return.

Method Two

You can setup WinMan Cloud to calculate the estimated VAT on purchase invoices from your overseas suppliers, which will then automatically post the estimated VAT value to your VAT Return and VAT Liability Chart of Account.

Once you receive your monthly statement (C79 certificate) from HMRC, check that the estimated VAT for your postponed VAT invoices matches the import VAT due on the statement. Use the Postponed VAT Purchase Invoice Report to show your postponed VAT invoices, their values and the total value as a comparison against your statement from HMRC.

If there is a difference between the estimated VAT and the value on your HMRC statement, then you will need to post an adjustment journal.

Method Two Setup

Tax Zones and Rates

1. Navigate to the ‘Tax Zones and Rates’ module.
2. The tax zones will have a header and the rates that are applied to that zone.
3. Click the ‘+’ in the Tax Zone section to add a new tax zone.
4. Select a Zone Type (we recommend Country), select the Country and enter a Name and Code. For example: Country: ‘France’, Name: ‘Postponed VAT France’ and Code: ‘PPVFRA’.
5. Click ‘Save’ to save the tax zone.
6. Set up a Tax Zone for each country that you deal with where Postponed VAT is applicable.
7. Add the tax rates to the zone using the Using the Actions ‘New Tax Rate Type’.
8. Select a Tax Class see previous.
9. Select a Tax Rate Type see previous, this will determine where the tax control account is, this should be asset as VAT (following the example in Tax Rate Types).
10. The percentage of tax can be set against the tax class.
11. An effective date range can be set as taxes change, leaving the start and end dates blank will mean the rates are always applied.
12. Click ‘Save’ to save the tax rate.

Tax Groups

1. Navigate to the ‘Tax Groups’ module.
2. Click ‘New Tax Group’ to add the tax group, e.g., Postponed VAT.
3. Click ‘Save’ to save the tax group type.
4. After adding the tax group view the row and go to Tax Zones tab, add the tax zone see previous using the Maintain Zones Action.
5. Select the Tax Zones set up for Postponed VAT see previous.
6. All account customer and supplier details that are applicable for Postponed VAT should be added as using the Postponed VAT Group see previous.

Method Two Process

Any currency variations and exchange rate differences from the HMRC Statement and the estimated Postponed VAT in WinMan will need to be adjusted using a Journal. The process is the same as detailed in Method One, but the adjustment journal will need to increase or reduce the value and so the journal will be as follows:

To reduce the VAT, post a Debit value and select the ‘VAT Report’ option of Sales, then post a Credit value and select ‘VAT Report’ option of Purchasing.

To increase the VAT, post a Credit value and select the ‘VAT Report’ option of Sales, then post a Debit value and select ‘VAT Report’ option of Purchasing.