Troubleshooting the VAT return

Occasionally you may encounter an issue when running a VAT return. This guide will go through some common questions and provide advice on how to troubleshoot them.

Warning: This document offers general guidance only. Please seek advice from your accountant before making any adjustments to the VAT return. 

The VAT return

I have an entry which should be posting to the VAT return, but doesn't appear.

Check the following:

  • Is the date of the transaction within the VAT period?

    If it's earlier, are you including earlier unreconciled transactions?

  • Is the tax code on the transaction correct?

    Is it included in the VAT tax regime?

  • Is the account code appropriate for the journal type?

    For example, the net portion of bank receipt (BR) journals will only be included if the net amount posts to a code in the 4000 range. Learn more about what's included in each box here.

  • Has the transaction already been VAT reconciled?

    If so, it won't appear on any future VAT returns.

The value of Box 1 isn't 20% of Box 6.

The value in Box 1 is calculated by summing up every entry posting to the 2200 Sales tax control account.

The entries posting to 2200 come from the "tax" portion of sales invoice journals, which in turn are (generally) taken from the tax values of sales orders.

Check the following:

  • Is tax being applied to every sale, particularly those that download from an integration?

    While Brightpearl applies a tax code using a set of rules, the tax value is passed on from the system where the order originated. If you have sales with a tax code of T20 but no tax value, there may be a configuration problem where tax is not being recorded on your website or where your integration is not sending the value back into Brightpearl. Tax amounts can also be manually overwritten once the sale has come into Brightpearl.

    You can check by going to Reports > Sales detail and configuring columns to add the tax code, row net and row tax. Check that all rows with a T20 tax code has a row tax value equal to 20% of the row net value.

  • Are there any manual journals posting to 2200 with a T20 tax code? If so, why were they posted? Is their value correct?

VAT liability

I've completed all my VAT returns but there's still a balance on the sales and purchase tax accounts.

When you reconcile a VAT return, a VAT liability journal is posted which removes the sales VAT and purchase VAT for the period from the 2200 and 2201 account codes, and posts the difference into the 2202 VAT liability code.

This means that, in theory, after completing a VAT return, the balance on 2200 and 2201 should be zero.

If you find a balance on either account it could be indicative of an issue that needs to be resolved. Here are a few things to check.

  • Is there a gap in the VAT return history?

    i.e. have all previous VAT returns been reconciled? You can view your VAT return history under Reports > VAT return history.

    If a period hasn't been reconciled, it's possible the transactions in that period could be corresponding to the balance.

  • Were "earlier unreconciled transactions" included when doing the VAT return?

    If not, any transactions entered into a period after the VAT return for that period was reconciled will not be included in the VAT liability calculation.

  • Have any entries been made to the reconciled period after the reconciliation was done?

    Entries can be made to periods which have already been VAT reconciled, to be picked up on the next VAT return. These entries will create a balance.

    To check, you can go to Reports > General ledger and filter by:

    • Nominal code: 2200 Sales tax control account, or 2201 Purchase tax control account
    • VAT reconciled: No
    • Journal type: All except VR
  • Are there any entries for tax codes outside the VAT tax regime?

    Only tax codes which are a part of the "VAT" tax regime are included in the VAT return, and thus in the VAT liability calculations. If you have any sales using tax codes outside of the tax regime, you will have to post journals manually to account for the VAT liability for those sales. Learn more about tax reporting for other countries here.

  • Are there any T9 transactions posting to the tax accounts?

    The only T9 entries posting to the 2200 and 2201 codes should be from VAT liability journals. If any other transactions are posting to those accounts with a tax code of T9, they will not be picked up on the VAT return and will create a balance.

  • Have any VAT liability journals been canceled or edited?

    If any VAT liability entries have been canceled or edited that could cause a balance on the account. Filter the general ledger for entries with a journal type of VR to check your VAT liability entries.

Making Tax Digital

The figures are different on the Brightpearl VAT return and the MTD submission screen.

If you're seeing different figures on the VAT return screen and the MTD submission screen, check the following:

  • Is "Respect tax regimes" checked on the MTD submission screen?

    It must be checked, because the VAT return respects them by default.

  • Are both reports including (or excluding) earlier unreconciled transactions?

    Ensure this setting matches on both reports.

  • Are you using any reverse charge VAT codes?

    If so, are they correctly applied?

  • Did you reconcile the VAT return before trying to submit to HMRC?

    If so, you will need to undo the reconciliation and submit to HMRC first.

I submitted my VAT return to HMRC but forgot to reconcile the return in Brightpearl. Now the Brightpearl VAT return doesn't match what was submitted.

If you know what was submitted to HMRC, you can:

  1. Compare the submitted figures to the figures you get when you run the return.
  2. Post a journal to make the VAT return match what was submitted.
  3. Reconcile the VAT return.
  4. Post a second journal to reverse the first one.

Example

Say you submitted the following figures to HMRC:

Box 1

20,000.00

Box 2

0.00

Box 3

20,000.00

Box 4

12,000.00

Box 5

8,000.00

Box 6

100,000.00

Box 7

60,000.00

You forget to reconcile the return in Brightpearl. When you come to do so, you find the figures have changed:

Box 1

20,100.00

Box 2

0.00

Box 3

20,100.00

Box 4

11,000.00

Box 5

9,100.00

Box 6

100,500.00

Box 7

55,000.00

Step 1 is to compare the figures to find the differences:

Box

Submitted figure

Brightpearl figure

Difference

Box 1

20,000.00

20,100.00

+100

Box 2

0.00

0.00

0

Box 3

20,000.00

20,100.00

+100

Box 4

12,000.00

11,000.00

-1000

Box 5

8,000.00

9,100.00

+1100

Box 6

100,000.00

100,500.00

+500

Box 7

60,000.00

55,000.00

-5000

Step 2 is to post the journal to align the Brightpearl VAT return to what was submitted, using your knowledge of what populates each box and whether that code is increased or decreased by a debit or credit.

In this case the Brightpearl figures are displaying an increase in sales/sales tax and a decrease in purchases/purchase tax.

Sales and sales tax codes are increased by crediting them. Purchases and purchase tax codes are increased by debiting them. Therefore in this situation we have to debit all of the codes in order to reduce sales and increase purchases.

The journal will look as follows:

Nominal code

Dr

Cr

Tax code

4000 Sales

500

0

T20

2200 Sales tax

100

0

T20

5000 Purchases

5000

0

T20

2200 Purchase tax

1000

0

T20

9998 Suspense

0

6600

T9

Some important things to note:

  • You don't have to use T20 as a tax code - it just has to be a non-T9, non reverse charge code which is included in the VAT tax regime.
  • The last line is posting to a suspense account with a tax code of T9. This is because we don't want it to appear on the VAT return (if it did, there would be no point in making these adjustments!).
  • This journal must post into the period being reconciled.

Once this journal has been posted, you will see a change to the Brightpearl VAT return figures. The journal should reduce sales and sales tax and increase purchases and purchase tax, making the numbers match the submission to HMRC.

You can now reconcile the VAT return (enacting Step 3).

Step 4 is critical - you now have to reverse the entry you made, so those changes are captured in the next VAT return.

The journal will be VAT reconciled so you can't cancel it. Therefore you must post another journal entry to cancel it out.

In this case the journal would be:

Nominal code

Dr

Cr

Tax code

4000 Sales

0

500

T20

2200 Sales tax

0

100

T20

5000 Purchases

0

5000

T20

2200 Purchase tax

0

1000

T20

9998 Suspense

6600

0

T9

Note everything is identical except the debits and credits have been swapped.

This journal will be picked up on the next VAT return and represents the entries that were posted after the return was submitted.

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