VAT and the VAT return

Brightpearl supports the following VAT schemes:

  • Standard
  • Cash

Special tax codes

Tax codes can be used for any transaction, but it is important to recognise that some codes have a specific purpose:

T4 is for EU sales

T8 is for taxable EU purchases

T9 is for non-taxable EU purchases

All other tax codes can be used for any transaction. The type of transaction will dictate how the VAT is reported:

  • Purchases, purchase credits and bank payments will all report purchase taxes
  • Sales, sales credits and bank receipts will all report sales taxes

Tax codes on orders

When an order is downloaded from a sales channel it will use the tax engine rules to decide which tax code should be assigned to each order row. Learn more about the integration tax rules.

Note that the value used on the order may be that calculated by Brightpearl, or that from the sales channel. Please refer to your developer or channel documentation.

When an order is manually entered the tax code assigned to the order row will be the product tax code. If the customer has been assigned a specific tax code this will be used, overriding the product tax code.

Accounting for VAT

Brightpearl automatically posts the accounting for tax for all transactions. The accounting for tax is the same for all VAT schemes. If you are on the FRV scheme then an additional and manual accounting correction will need to be made to periodically, which will make the adjustments for your reduced VAT rate.

VAT accounting will automatically affect the following nominal codes:

  • 2200 Sales Tax Control Account

    All sales type transactions with VAT post to this code; these are journal types SI, SC, BR.

  • 2201 Purchase Tax Control Account

    All purchase type transactions with VAT post to this code; these are journal types PI, PC, BP.

  • 2202 VAT Liability

    This code is used when the VAT return is reconciled and the 2200 and 2201 are cleared down for the period; it uses a VR type journal.

Note that Sales Receipts (SR), Purchase Payments (PP) and Bank Transfers (BT) are always assigned tax code T9 (Not rated) and therefore will not record any VAT amounts or show on the VAT return unless the journals are manually edited.

VAT return

The VAT return in Brightpearl is built by reading accounts journals. The VAT return boxes affected by transactions depends on the nominal code and the tax code used in the journal.

Nominal code Any tax code T4 T7 or T8 T9
2200 Box 1 Box 1 - -
2201 Box 4 - Box 2, 4 -
Sales 4000-4999 Box 6 Box 8 - -
Non-sales, not 4000-4999 Box 7 - Box 7, 9 -

When processing transactions in Brightpearl the relevant nominal codes and tax codes will be recorded automatically on the accounting journal so that the VAT return reports the correct figures. Here is how you can expect different transactions to be reported on the VAT return:

Transaction Type Tax control nominal Any tax code T4 for EU sales T7 or T8 EU purchases T9
Sales invoice (SI) 2200 Box 1, 6 Box 1, 8 - -
Sales credit (SC) 2200 Box 1, 6 Box 1, 8 - -
Sales receipt (SR) By default these are not taxable journals and are assigned T9  
Bank receipt (BR) with sales code 2200 Box 1, 6 Box 1, 8 - -
Bank receipt (BR) with non-sales code 2200 Box 1 Box 1 - -
Purchase invoice (PI) 2201 Box 4, 7 - Box 2, 4, 7, 9 -
Purchase credit (PC) 2201 Box 4, 7 - Box 2, 4, 7, 9 -
Purchase payment (PP) By default these are not taxable journals and are assigned T9  
Bank payment (BP) with non-sales code 2201 Box 4, 7 - Box 2, 4, 7, 9 -
Bank payment (BP) with sales code 2201 Box 4 - Box 2, 4 -
Bank transfer (BT) By default these are not taxable journals and are assigned T9  

 

Excluding tax codes from the VAT return

If you are required to report tax in more countries than the UK you will need separate tax codes for each reporting scheme. To ensure tax codes and transactions relating to tax payable outside of the UK VAT use Tax Regimes. A tax regime is a category of tax code. The VAT return will include only tax codes assigned to the "VAT" tax regime. You can create as many tax regimes as you need to separate tax codes into reporting groups.

Learn more about tax configuration

Reconciling your VAT return

When you are happy with the numbers that display on your VAT Return, print 2 copies then click the Reconcile VAT return button. A journal will be created to transfer the VAT payable from your sales and purchase tax nominal codes into your VAT liability account. This will mark each transaction included in the return as reconciled. Once a transaction has been reconciled for VAT you will not be able to change it. It is good practice to ensure that all Brightpearl bank records have been reconciled with the bank statements for the VAT period first to reduce the chance of errors.

How to run a VAT return

  1. Go to Accounting > VAT Return
  2. Select the date range
  3. Choose whether to include reconciled transactions in the current period (transactions that have already been reconciled for VAT using the VAT Return page). The usual setting for this option is 'No'
  4. Choose whether to include unreconciled transactions prior to the chosen period. The usual setting for this option is 'Yes'. This will include transactions with a date during any previous VAT period that have been entered into your accounts since the last VAT report was produced
  5. Choose whether to display a detailed report
  6. Click Submit to show you VAT return figures
  7. If relevant, copy the numbers to your paper or online VAT return (if you are using FRV you will need to convert the figures to your flat rate and post an adjusting journal)
  8. It's a good idea to display and print a copy of the detailed report for your records before you reconcile the VAT transactions
  9. Click the Reconcile VAT Return button to mark all the included transactions as reconciled for the tax period

Marking the VAT return as reconciled will post a VR type accounting journal to clear down the 2200 Sales Tax Control account and 2201 Purchase Tax Control account and increase 2202 VAT Liability account with the amount owed to the HMRC for the tax period.

Submitting your VAT return to HMRC (MTD)

Learn more about MTD and submitting your VAT return digitally using the Brightpearl HMRC app

Paying your VAT

If you owe money to HMRC use a bank payment to record the payment from your bank account, posting it directly to the VAT liability account. The amount paid should be the balance of the VAT liability account leaving an overall balance of zero after the payment has been processed.

If you are receiving money from HMRC use a bank receipt to record the payment into your bank account, posting it directly to the VAT liability account. The amount received should be the same as the balance of the VAT liability account, leaving the overall balance as zero after the payment have been processed.

To check the balance of the VAT liability account, view the Trial Balance.

Viewing previous VAT returns / historical VAT returns

You can view the transactions that have been included on previous returns by opening Reports > More > VAT History from the main menu.

Running a VAT return for the same dates as a previously reconciled VAT return will not provide a historical VAT return view. Each time the VAT return is run it produces results based on current data so any new transactions added since the VAT reconciliation will be included too.

Why is my VAT return incorrect?

You are responsible for ensuring that all of your VAT returns are submitted correctly. If you suspect there is an error, then it is recommended to review all journals included in that return via Reports > VAT return history. You should also seek advice from your Accountant.

What's included on the VAT return - standard scheme

The VAT return will include tax postings made using the following journal types:

  • SI and SC

    Only sales (4000-4999), purchase (5000-5999) and tax control accounts (2200 & 2201) will be included in the VAT return.

  • PI and PC

    Only sales (4000-4999), purchase (5000-5999) and tax control accounts (2200 & 2201) will be included in the VAT return.

  • BR

    Excludes postings to purchase nominal codes (5000-5999).

  • BP

    Excludes postings to sales nominal codes (4000-4999).

  • JJ

    JJ journals were previously not included in the VAT return. Due to changes in version 4.60 JJ journals created on or after 1st January 2014 will now be included, and any JJ journals dated prior to this will be excluded. 

Journal types SR and PP are always excluded from the VAT return. Transactions made using these journal types would not normally be assigned tax codes.

A journal row value (depending on the journal type as stated above) will be included on the VAT return where the row has been assigned a tax code. In this image row 1 and 2 have a tax code of T20 and will therefore be shown in the relevant boxes of the VAT return:

Jnl_tax_codes

The following rules are applicable to rows in JJ journals which are assigned a tax code:

  • For a sales nominal code (4000-4999) the full amount is included in Box 6 of the VAT return. A credit will increase box 6 and a debit will decrease box 6 (Sales)
  • For the sales tax control account (2200) the full amount is included in Box 1 of the VAT return. A credit will increase box 1 and a debit will decrease box 1 (Sales tax)
  • For any nominal code which is not sales (i.e. 1-3999 and 5000-9999) the full amount is included in Box 7. A debit will increase box 7 and a credit will decrease box 7 (Purchases)
  • For the purchases tax control account (2201) the full amount is included in Box 4 of the VAT return. A debit will increase box 4 and a credit will decrease box 4 (Purchase tax)

Changes for JJ journals dated 1st January 2014 onwards

Prior to version 4.60, JJ journals were always excluded from the VAT return, even where the journal rows were assigned tax codes. JJ journals are generally system created journals where tax was not applicable. However, where a manual journal was entered this would also be excluded and made it more difficult to manually enter journals which should affect the VAT return.

As of version 4.60, we introduced changes to begin including JJ journals on the VAT return. Since JJ journals had never been included they were never marked as VAT reconciled, and this meant that the VAT return could potentially now include old JJ journals since the date you began using Brightpearl. In order to prevent this, part of the transition to including JJ journals was to mark old JJ journals (dated before 1st January 2014) as reconciled.

I thought JJ journals were always included, does that mean my past VAT returns were wrong?

Most JJ journals are system created and tax is not applicable - they are always assigned the "T9 Not rated" tax code. The filters on the General Ledger report can be used to identify JJ journals with tax codes, this will allow you to identify journals and investigate whether those transactions should have been included in a past VAT return.

What does this mean for reconciled VAT returns?

Reconciled VAT returns are not affected by these changes. However, if you choose to remove a VAT return which was reconciled before these changes of version 4.60 and that VAT return covers dates within 2014 and JJ journals with tax codes (other than T9) exist, then a different result would be given even if no additional activity was recorded. Obtaining a list off JJ journals with tax codes using the filters on the General Ledger report will allow you to identify those journals which will now be included.

How do I identify those JJ journals?

The filters on the General Ledger report allow you to identify journals by type, date range and tax code. Go to Reports > General Ledger and search for JJ journals for your VAT return period and then search by one tax code at a time to identify those JJ journals using a tax code which would cause it to display on your VAT return (i.e. a code which is not T9 Not rated).

Find_JJ_jnl

How do I make sure those journals are not included?

Using the process above you can identify those journals. Open to edit the journal and change the row tax codes to "T9 Not rated". This will exclude the values from the VAT return.

I don't want JJ journals prior to 1st January 2014 automatically reconciled. Can you undo this?

Yes, if you wish to include JJ journals made prior to 1st January 2014 on your next VAT return we can remove the "reconciled" flag. Please contact our Support team to request this is done.

What's included on the VAT return - cash scheme

The VAT return includes the following journal types:

  • SI and SC

    Only where a payment is allocated against the invoice.

    Only sales (4000-4999), purchase (5000-5999) and tax control accounts (2200 & 2201) will be included in the VAT return.

  • PI and PC

    Only where a payment is allocated against the invoice.

    Only sales (4000-4999), purchase (5000-5999) and tax control accounts (2200 & 2201) will be included in the VAT return.

  • BR

    Excludes postings to purchase nominal codes (5000-5999).

  • BP

    Excludes postings to sales nominal codes (4000-4999).

All JJ, SR and PP type journals will be excluded even if a tax code has been assigned to the journal row.

EC sales and purchases

The VAT return boxes 8 and 9 will include all sales and purchases which use the tax codes T4, T7 and T8.

Box 2 will display tax on EC purchases (purchases using tax code T8) using the rate from the company default tax code chosen at Settings > Company > Accounting: Tax.

Use the EC sales list to produce a report for the Inland revenue. Click Reports > Accounts...More > EC Sales list.

Flat Rate VAT

Brightpearl does not support Flat rate VAT accounting - tax will be accounted for in full. If you choose to use Brightpearl when registered for flat rate VAT manual adjustments will need to be made to account for the differences.

We highly recommend you seek accounting advice on how the journal should be entered and for what value.

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