How journal entries affect the VAT Return

This explains how to include journals on the VAT return

What you need to know

Journal entries are usually used to move values from one ledger account to another and do not affect the VAT return.

However, you can include VAT on your journals and report them on the VAT return, if required.

Include a journal on a VAT return

When entering the journal, choose to the check box under in the Include VAT Return column.

The VAT rate used for each line of the journal are determined by VAT rate set of the ledger account selected on each line.

How the journal affects the VAT return

Ledger Account Default Nominal Code Credit or Debit Affects the VAT Return
VAT on sales 2200 Credit Increases Box 1
VAT on sales 2200 Debit Decreases Box 1
VAT on purchases 2201 Credit Decreases Box 4
VAT on purchases 2201 Debit Increases Box 4
Any income account 4000 to 4940 Credit Increases Box 6
Any income account 4000 to 4940 Debit Decreases Box 6
Any expenditure account 5000 to 9999 Credit Decreases Box 7
Any expenditure account 5000 to 9999 Debit Increases Box 7
* Any other account Credit

Increases Box 6

* Any other account Debit

Increases Box 7

* The last two don’t include journals to the following nominal codes:

  • Income
  • Expenditure
  • VAT on sales
  • VAT on purchases
  • VAT on Sales Holding
  • VAT on Purchases Holding
  • VAT liability

Flat Rate VAT Scheme

If you use the Flat Rate VAT Scheme you can’t journal a value to directly affect Box 1. To record a sale on your VAT Return,

  • Enter journal to an income ledger account. This will affect Box 6 as above.
  • The VAT is calculated using your flat rate percentage and included in Box 1.
    If you still need to amend the value in Box 1, you can manually adjust your VAT Return.