Why are there 3 nominal codes for VAT?

Hi all

My system shows the following 3 nominal codes for VAT:

2200 Sales Tax Control Account

2201 Purchase Tax Control Account

2202 VAT Liability

Surely, VAT liabiity = Sales Tax - Purchase Tax, so why have a seperate code for VAT Liability?

Secondly, code 2202 shows a sum which is not equal to Sales Tax - Purchase Tax.  So where has this number come from?

Any help greatly appreciated!

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  • Hi ,

    Thanks for using Sage City Cityscape

    The reason for the 2202 VAT Liability ledger being around is due to the calculations that take place when you run your VAT Return.

    Prior to running the return itself, the VAT element of your transactions build up in the Sales and Purchase Tax Control Accounts as required. Then when you run the return and post the VAT Transfer, these values are totalled up and the net is transferred to the VAT Liability account.

    Think of the Tax Control Accounts as Sage putting the VAT to one side, and the VAT Liability account as the final "this is the VAT you owe" account once the two accounts have been reconciled.

    The reason for the variance between the ledger balances is that these ledgers shouldn't in fact balance in the way you're suggesting - They would only balance in the event in that you've just run your VAT Return, have transferred over the values, and not processed any transactions with VAT on them after the date of the VAT Return. Even in that scenario, the ledger balances of the two control accounts would then be 0.00.

    The balance on the VAT Liability account should tally with the VAT due on your previous VAT Return. 

    I hope this is helpful. Have a great day Slight smile

    Regards.

    Anth 

    Sage UKI.

  • Thanks Anth.  You've explained that perfectly - I get it now!

    Second question, if I may: When I produce a manual VAT return and submit a payment to Revenue, I debit the VAT Liability account.  Is that correct?

  • Hello again Slight smile,

    Really pleased that's clear for you now! Sunglasses

    If you're doing a manual VAT Return, yes you'd need to record the actual payment (or receipt, if you're due a rebate.) from the bank account. You would indeed debit or credit the liability ledger as required, aiming to bring it to a 0.00 balance after the bank transaction ClapClap

    Thanks again,

    Anth

    Sage UKI Green heart

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