What is a VAT Adjustment?
A VAT Adjustment is a specific type of adjustment (also known as a journal) used to adjust the figures on the VAT return.
These can be entered at any point, for reasons such as correcting data input errors, accounting for the fuel scale charge or for partial exemption purposes.
Fuel Scale Charge - The Fuel Scale Charge system is a simplified way of taxing the private use of car fuel. If you use your vehicle for business and private motoring, you can claim all the VAT on road fuel as long as you apply the appropriate fuel scale charge which is based on a standard table that relates to CO2 emissions.
Did you know? You can set up a VAT adjustment as a recurring transaction, allowing you to automate your monthly or quarterly fuel scale charge adjustments.
Partial Exemption - A VAT registered business may fall within the scope of partial exemption when it has supplies of both a taxable and an exempt nature.
In this case sales (output) VAT cannot be charged on an exempt supply (for example domestic rents) and equally any purchase (input) VAT incurred directly in making the exempt supply, generally, cannot be recovered.
However some of the VAT on shared costs can be claimed. NB any business operating a partially exempt VAT system should refer to the current documentation supplied by HMRC.
VAT adjustments can also be used to adjust the amount of input VAT being claimed on shared expenses.
There are different methods that can be used to calculate the proportion of VAT that can be claimed on certain expenses so if you have any queries you should always consult a professional.
How to use VAT Adjustments in Farmplan Business Cloud
Go to the Accounting tab | VAT Adjustments.
You will then be presented with the adjustment screen - it is similar to a normal adjustment screen, however you will have category options for Input VAT and Output VAT, and each line of the adjustment requires you to select a VAT code (except for the line where you have selected either Input or Output VAT).
NB - you cannot select the 'Input VAT' and 'Output VAT' categories in the same adjustment.
Always remember that the total debits and credits must be equal for the adjustment to save. The category and VAT code selected will also determine how the VAT return will be affected.
The following example shows a typical Fuel Scale Charge adjustment.
Using this example, it would affect a VAT return in the follow way:
The output VAT has been credited (increased) so it will be shown in box 1 on the VAT return.
The cost of fuel to the business has been debited (increased) by the same amount but this will not affect the VAT return as it has a VAT code of NV.
An adjustment code in the Revenue band has been credited (increased) by the net value with VAT code ST, so this will affect the VAT return (box 6).
To counteract that code and bring it back to 0, it has also been debited but this time will not affect the VAT return as it has VAT code of NV.
You can easily view all previous adjustments by clicking on the magnifying glass symbol on the top right.
If you are unsure about how to make VAT adjustments then it is always best to check with your accountant first.
Product Tour - Recurring VAT Adjustments - Additional Help
To assist you in being able to add a Fuel Scale Charge Adjustment we have a product tour available to watch that will guide you through the process.
For your convenience the tour has been split into 2 parts, to enable you to either complete the full process today or return to it later.
Click here for Part 1: Shows you how to navigate to your Recurring VAT Adjustment page.
Click here for Part 2: Shows you how to set up your adjustment, so it recurs automatically.