VAT nominal accounts

There are five VAT nominal accounts in the chart of accounts. When you enter a transaction, the VAT scheme determines which codes the VAT amount appears in.

2200 VAT on Sales
2201 VAT on Purchases
2202 VAT Liability
2205 VAT on Sales – Holding Account
2206 VAT on Purchases – Holding Account*

* This code currently isn’t in use, however by default, it appears in the chart of accounts.

Invoice Basis

When you enter a VAT-applicable transaction, the VAT amount posts against the VAT on Sales or VAT on Purchases account. For example, a purchase invoice for 100 + VAT appears in the following ledger accounts:

Ledger Account Debit Credit
Trade Creditors 123.00
Other expenses 100.00
VAT on Purchases 23.00

Cash Basis

Only sales invoices use a holding nominal account. The VAT amount of a purchase invoice appears in the VAT on Purchases nominal account as above.

When you enter a VAT-applicable sales invoice, the VAT amount posts against the VAT on Sales – Holding Account. When you run a VAT return, the transactions that post against this holding account aren’t included. For example, a sales invoice for 100 + VAT appears in the following ledger accounts:

Ledger Account Debit Credit
Trade Debtors 123.00
Other income 100.00
VAT on Sales – Holding Account 23.00

When you enter a receipt against an invoice, the VAT amount transfers from the VAT on Sales – Holding Account into the VAT on Sales account. This simple process means that the VAT amounts due on sales invoices are held separately from the traditional VAT on Sales nominal account, until they are due to appear in the VAT return. For example, a receipt against the above invoice posts the following transactions:

Ledger Account Debit Credit
Trade Debtors 123.00
Cash at Bank 123.00
VAT on Sales – Holding Account 23.00
VAT on Sales 23.00

When you run a VAT return, these transfer transactions are included.