Change VAT schemes

Updated on May 7, 2022

Change VAT schemes

If your company has reached a certain level of revenue or if a new scheme would be more beneficial to your company, you may need to switch VAT schemes. Accounting Start supports the following VAT models:

In the absence of a valid VAT registration number, no VAT is calculated on any transactions.

Invoices and credits issued and received are used to calculate standard VAT.

On the basis of payments and receipts, VAT is calculated.

V.A.T. is calculated on invoices and credits at a certain proportion.

Using a flat-rate cash basis, VAT is calculated based on the amount of money that is paid and received.

Registration with HMRC for online filing is a need if you’re making the switch from not registered. In order to learn more about HMRC online services, please go to www.gov.uk/hmrconlineservices.

When to change VAT schemes

You can only join a new VAT scheme at the beginning of a new accounting period, according to HMRC standards. This is why we propose changing your VAT scheme after you’ve filed your final tax return under the prior one. You should not enter any transactions on the new scheme until you have run the return and changed your scheme in order to ensure that VAT is accurately accounted for.

Preparing to change your VAT scheme

Before you change your VAT scheme

Set a start date for the new VAT system. After you’ve filed your final VAT return for the previous scheme, we recommend that you begin a new accounting period. Once the return has been filed and you’ve altered your VAT scheme, you should not enter any transactions after this date.
For the final month or quarter in which you’re using the current VAT scheme, enter all transactions up to that point.
Prepare and submit your final VAT return to HMRC for the current VAT scheme. Calculate and submit.

Not registered for VAT

Transactions made previous to switching from not registered for VAT to another scheme are not included in your VAT return if you make this change. For example, if you didn’t select a scheme before entering the transactions, you should invalidate or remove them. The VAT scheme can then be changed and the right VAT rate can be selected again. The transactions are included in your first VAT return.

Future dated transactions

After you’ve selected a date for switching schemes, you shouldn’t enter any new transactions that are subject to VAT under the previous scheme.

It is not possible to change VAT schemes until after the date of a future transaction, therefore if you are currently using Standard VAT, don’t record any sales invoices or credit notes dated after that date.

You have two alternatives if you plan to make future purchases:

Re-enter the transactions after changing your scheme and voiding the previous ones. However, this may not always be achievable if the invoice has been designated as paid, or if the VAT has already been reconciled, or the bank has already been reconciled.
Don’t adjust your strategy till the following period. It is possible to make a final VAT return, then change schemes after the return or transaction date, whichever comes first, if you like.

To change your VAT scheme

You may access these settings by clicking on More, then Settings, and then Business.
Click Account Dates & VAT in the Financial Settings section.
In order to verify or input the following data:

VAT Scheme Choose the new VAT Scheme.
Submission Frequency Choose how often you intend to submit your VAT Return to HMRC.
VAT Number Enter your VAT number.
Flat Rate (%) If you’re changing to a flat rate scheme, enter your flat rate percentage.
HMRC User ID If you’re changing from not registered, enter your user ID for the Government Gateway if you have it.

 

  1. Click Save.

After successfully changing your VAT scheme, your next VAT Return includes the essential transactions for the new scheme. ‘Successfully’

Whenever you record an invoice as paid, no VAT is calculated because the prior scheme has already been accounted for when you switch to VAT Cash Accounting or Flat Rate Cash Based Scheme.

The next time you run your VAT Return, VAT is calculated on any outstanding invoices or credit notes if you’re converting to Standard VAT or Flat Rate Invoice Based. When you record the payment against them, no VAT is calculated.

Messages received when changing schemes

Before changing your tax status, you must file a VAT Return.

Before you try to change the VAT scheme again, click Cancel and submit your final VAT Return.

You must cancel all future dated transactions before altering your tax scheme.

If you have any future-dated transactions, you cannot change VAT schemes. See the future-dated transactions section for more details.