VAT Returns Don't Agree
VAT is a tricky topic when converting data. Different software systems have very different approaches to VAT. From calculating rounding differences differently to the way they record "late" invoices, the varied approaches make VAT a challenge.
We'll attempt to explain our overall approach to VAT and how this might affect your conversion. We try to make it clear in advance of converting that it is impossible to make an exact copy of your data in a different accounting system. Please attempt to bear this in mind throughout.
Why are there tasks to complete after the conversion?
VAT periods and registration numbers aren't required for converting so these will need to be entered.
In addition, you've probably submitted VAT Returns using Sage or QuickBooks. Since you've been using the software until recently, it knows which transactions were included in what VAT Return and at what date that VAT return was calculated and submitted. Our conversion process is unable to bring over the VAT reconciled / filed status of transactions. Since VAT returns have never been filed in the new system, it will assume that the date of all transactions determines the period of the VAT Return it should be included within. Until a VAT Return is filed it's not possible to calculate "late" transactions.
Once you file your first VAT Return the assumption is that all previous VAT transactions have been dealt with. Any "late" transactions or amendments to transactions included in prior VAT periods will correctly be recognised as such and brought in the current VAT period.
Why doesn't my VAT return in my old system agree to the new system?
As mentioned above, one reason is those "late" bills so consider this example. Once a "late" bill is entered into your old software, it knew the invoice was "late" as the return for the period the bill is dated in had already been submitted. It was therefore included in a more current return. After converting, your new software will simply take the bill date and try to include the transaction in the VAT return covering that period. This timing difference will mean historical VAT returns don't agree but the overall VAT liability balance will agree.
Another reason historical VAT returns may differ is due to other workarounds we have to use. Particularly when dealing with EC transactions, different software systems apply the VAT rates very differently in order to achieve a similar result. We're often left with a situation where it's just not possible to enter a transaction so that it has the correct VAT treatment in a return and also results in the overall correct VAT liability balance. This often occurs with payments on account under the cash VAT scheme. We've decided that it's more important the financial statements accurately reflect the correct balances over the requirement to correctly complete a VAT return. The reasoning here is that if the overall balance isn't correct the VAT returns won't be correct for long. Since the overall balance is correct, despite some initial VAT returns needing adjusting, after a short while further adjustments won’t be necessary and the correct returns and balances will prevail.
What does this mean to me?
In short, that you'll have some work to do after the conversion completes. You'll need to work through the post-conversion tasks to enter VAT details. Also, the first VAT return (but also possibly subsequent returns) in your new software could be incorrect. You'll almost certainly need to refer to VAT Returns, VAT audit trails and EC Reports in your old system in order to help determine the correct VAT figures for the next return you file. You may need to manually submit the numbers to HMRC rather than using the figures provided by the software. Alternatively you may be able to adjust the figures provided by the new software to correct them.
The good news is that once you've sorted your first VAT Return in your new system, then subsequent returns are less likely to need amending in any way (assuming you've correctly applied VAT rates in your new system).
It also means we recommend you avoid spending time trying to generate and reconcile already filed VAT returns from one system to another. They're unlikely to agree and they're already submitted. Instead, we suggest it's best to focus on the VAT yet to be submitted to make sure it's correct. This may require calculating a partial VAT period in your old system and a partial period in your new system and combining the two.