When it comes to running your MTD VAT return via Xero, the software streamlines the process of complying with HM Revenue & Customs (HMRCs) requirements and makes it easy for you to track and manage VAT charged or paid by your business, and so any resulting liabilities or repayments.

Whether you are operating on the standard, flat rate or cash VAT scheme, Xero allows you to generate the appropriate return for your business.

Xero is also capable of processing reverse charges, and purchases from abroad.

VAT in Xero: Invoices and receipts

The information that Xero uses for your VAT returns is extracted from sales and purchase invoices, bills, expense claims, credit notes, bank transactions and manual journals that have been input onto the software, whether manually so or by using an add-on like Hubdoc, for example.

The VAT rate assigned to a transaction in Xero should always match up to the paperwork that was originally provided to you by the supplier.  

Reviewing your transactions and identifying errors

In Xero, you can easily check that the transactions in a period all have the correct rate of VAT applied.

  1. Go to Accounting a Reports a VAT Returns
  2. Select the VAT return you want to review by clicking ‘View’
  3. Select the tab ‘Transactions by Tax Rate’
  4. This report enables you to see any transactions that you think may be incorrect
  5. If you need to make an adjustment, you can do this by selecting the transaction in question from within the report, then selecting ‘Invoice Options’ in the top right corner and then ‘Edit’. You can manually change the VAT charge on this transaction and click ‘Approve’.*

*Note: in most cases, you will be able to edit transactions via the method described above, but in certain instances Xero may prevent you from editing a transaction. If you experience any problems, speak to your cloud accounting adviser who can help you to make the adjustment.

With the ability to pull up this information on one screen, and to see transactions grouped by nominal codes, clients and advisers alike can easily review the detail to be included on a VAT return, spot discrepancies and make necessary adjustments, prior to submission.

It is also possible to export the report as a PDF or Excel spreadsheet, for convenience.

Being able to drill down into specific transactions and view uploaded documents can also aid efficient resolution of inconsistences, since you can take the information straight from source.

Plan for your VAT liabilities

As well as ensuring the right information is declared to HMRC, Xero also makes it easy for its users to track their VAT liabilities. You can view the current periods return at any time during the period; you do not have to wait for the quarter to come to an end.

  1. Go to Accounting a Reports a VAT Returns
  2. Ensure that the ‘VAT Return’ tab is selected

Here, you will be able to see the total VAT owing for the period in question or, otherwise, if you happen to be due a repayment from HMRC.

Easy access to this information means you always know what your position is in respect of VAT and can plan for your liabilities accordingly.

How can George Hay help?

Our cloud accounting experts in Cambridgeshire, Bedfordshire and Hertfordshire are here to help you explore what works for your business, and to ensure you are getting the most out of your chosen software.

If you would like to find out more about tracking and managing your VAT in Xero, contact us today.

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