VAT Cash Accounting
How to account for the decrease in the standard rate of VAT using Sage Accounts
Summary
From 1 December 2008, the standard rate of VAT will decrease from 17.5% to 15%. This article
explains how this change affects Sage Accounts and what you need to do.
This article only applies to the VAT Cash Accounting Scheme. If you are using the Standard VAT
scheme, please refer to Ask Sage Article 22856 .
Note: The following are not affected by the change in VAT rate:
Zero-rated goods, for example, basic foodstuffs, children’s clothing and children’s footwear.
Goods and services subject to VAT at the reduced rate of 5%.
Answer
The article includes the following sections:
Which VAT rate should I use?
This section explains how to determine which VAT rate to apply
To change the VAT rate in Sage Accounts
To change the standard rate of VAT in Sage Accounts, you should edit the standard rated tax code, T1 by default.
To edit existing invoices and orders
If you have any product or service invoices that were created before the change but updated after the change, you must recalculate the VAT on each of these invoices.
To amend the VAT settings
There may be occasions when you need to credit invoices at the old VAT rate or enter late supplier invoices at the old VAT rate. If you need to do this, you must select the Item VAT amendable check box. This section explains how to do this.
Deposits and prepayments
If you are using the VAT Cash Accounting scheme and you use the Payment Details tab to enter deposits or prepayments on invoices or orders, you must ensure that the correct rate of VAT is applied.
Which VAT rate should I use?
The rate of VAT that you should charge on your goods and services depends on:
- The VAT scheme you are using.
- The tax point of the supply.
Note: On the VAT Cash Accounting scheme, VAT becomes payable at the point of payment.
However, the tax point of the supply is at the time of the invoice. If your invoice is dated
prior to 1 December 2008 but your payment or receipt is after this date, the payment or
receipt must use the same VAT rate as the invoice. Sage Accounts does this automatically.
To confirm which VAT rate to apply, please contact HMRC.
Note: We are unable to advise which VAT rate you should apply in specific circumstances. If you are
unsure, please confirm the correct VAT rate with HMRC.
To change the VAT rate in Sage Accounts
Note: You should make this change on 1 December 2008. Under the VAT Cash Accounting scheme,
the VAT on customer receipts and supplier payments calculates automatically based on the invoice.
1. Open the Settings menu, choose Configuration then click the Tax Codes tab.
Sage Accounts v9 and below - Open the Settings menu then choose Tax Codes.
The tax code information appears.
2. Select T1 then click Edit.
Note: If you use a different tax code for your standard rate of VAT, select the relevant tax
code then click Edit.
The Edit Tax Code window appears.
3. Enter 15 in the Rate box then click OK.
The Edit Tax Codes window closes.
4. To apply the change, and return to the Sage Accounts desktop, click Apply then click Close.
Tip: If you are prompted to save your changes, click No.
Sage Instant Accounts v14 - Click Save then click Close.
You have successfully changed the standard rate of VAT.
Sage Accounts applies the new rate of VAT to any new transactions that use this tax code. All existing
transactions remain unchanged at the old rate of VAT.
To edit existing invoices and orders
Note: The steps below refer to invoices only. You should use the same process to amend any
relevant sales orders, purchase orders, credit notes or quotes. You should also amend any recurring
invoices or orders. For further information about this, please refer to Ask Sage Article 11748.
1. Open the Customers module then from the Links pane click Invoice List.
The Invoicing window appears.
2. Double-click the required invoice.
The invoice appears displaying the relevant items.
3. Click in the Description column of the first item that uses the standard rate of VAT then press
F3 on your keyboard.
Tip: For service invoices, click in the Details column then press F3.
The Edit Item Line window appears.
4. From the Tax Code drop-down list, choose the standard rate tax code.
Note: Although the correct tax code already appears in this box, to recalculate the VAT
amount you must select the tax code again.
The VAT amount recalculates using the new rate of VAT.
5. To close the Edit Item Line window, click OK.
6. Repeat steps 3 - 5 for any other standard rated items on the invoice.
7. To save your changes and return to the Invoicing window, click Save then click Close.
You have successfully updated the VAT amounts on the invoice. If required, repeat the process for
any other invoices that need to be updated.
To amend the VAT settings
Note: To determine the correct VAT rate for a particular credit note, please contact HMRC.
1. Open the Settings menu, choose Company Preferences, then click the VAT tab.
Sage Accounts v12 and below - Open the Settings menu, choose Company Preferences, then
click the Parameters tab.
The VAT settings appear.
2. Select the Item VAT Amendable check box then to save your changes and return to the Sage
Accounts desktop, click OK.
You have successfully amended the VAT settings.
When you enter late supplier invoices at the old rate of VAT, you can manually amend the VAT
amount.
To enter a credit note at the old rate of VAT, when you enter the items on the credit note, press F3
on your keyboard then manually amend the VAT amount as required.
Note: All of the standard invoice layouts in Sage Accounts include the VAT rate. Any credit notes on
which you amend the VAT will incorrectly print the VAT rate as 15%. We are in the process of
developing some new layouts to correct this and will make these available before 1 December 2008.
Deposits and prepayments
This information only applies if you are using the VAT cash accounting scheme.
If you use the Payment Details tab to enter deposits or prepayments and you choose the Post as
Payment on Account option, this may result in a discrepancy in the VAT Return for the period. This
only applies if you click Now on the Create Payment prompt.
Note: If you are unsure about the rate of VAT to apply to the prepayment or deposit, please
contact HMRC.
Download the VAT Cash Accounting using Sage Accounts fact sheet as a pdf
If you have any queries or require professional advice then please do not hesitate to contact us.
