Hi Mark.
Can you possibly clarify the workings of this account please.
I understand when invoices are raised, the balances increases. Likewise, when costs are incurred, the balance increases.
What's confusing me is that when i'm lucky enough to get a VAT refund from HMRC and allocate this from the VAT liability account to the current account, the balance of the VAT liability account increases.

Worryingly, even when running a VAT return and paying the money owed, the VAT liability balance does get anywhere near zero (as i thought it should).
What am i missing??

Hi Andrew,

The 'VAT Liability' balance represents the amount you owe to HMRC for VAT. In general:
a) When you raise invoices the balance should increase
b) When your supplier charges you VAT the balance should decrease (not increase)
c) When you pay money to HMRC for VAT the balance should decrease
d) When you receive money from HMRC for VAT the balance should increase

Typically rule (d) will apply if you have a negative VAT Liability balance, meaning that HMRC owes you money because you have been charged more VAT by your suppliers than you collected from customers. There are legitimate cases where the VAT Liability balance can be positive and you still receive money from HMRC (increasing the balance of the VAT Liability account) but it could also be that there is an error somewhere. Please click menu File > Backup, save the backup file and email it to me - this will give me a better understanding of the VAT transactions in your case (although I cannot promise that I will be able to identify a problem).

Regards,

Hi Mark

Following up on your assistance with this, i do believe i've got my head round it now.
The large VAT 'bill' is the invoices still to be paid.
Run a VAT report for July, having just had my VAT quarter, the report plus the invoices outstanding match, give or take a couple of quid.

Whichever VAT scheme we're on, the VAT is due at some point, being on the cash scheme seems to hide some of the 'eventually due' but keeps it visible in the VAT liability account.

That'll teach me to go nosying around. lol

Once again, a big hand to you for your support and input.

Andrew

Hi Andrew,

Yes you have it exactly. The VAT return only includes the paid invoices because you use the 'cash method'. However, your VAT Liability account account includes all invoices.

Glad to see you're getting the hang of it!

Regards,