Example 1
If you are charged for the VAT on a purchase separately, and so effectively have two transactions on your bank account, one for the purchase and another for the VAT, please follow the steps below to reconcile these transactions correctly.
For this example, we will use an expense item for the purchase of raw materials with a value of £1,000, a VAT rate of 20% which gives a VAT amount of £200.
- Firstly create an expense for the purchase of the raw materials with a value of £1,000 and a VAT rate of 0.0%. This expense can then be used to reconcile against the initial £1,000 transaction for the purchase
- Then create a second expense with two rows in it:
- the first row should be for £1,000 and a VAT rate of 20.0%, creating a VAT amount of £200
- the second row should be for -£1,000 and a VAT rate of 0.0%
This creates an expense with a value of £0 and a VAT amount of £200 which can then be used to reconcile against the second VAT-only transaction of £200
3. Please refer to this article to manually match your expense to its corresponding transaction: How to manually match an expense to a bank transaction and mark it as paid?
Example 2
Below is an example of a transaction, where you would need to recover 100% of the VAT paid in one outgoing transaction:
- Total cost of labour costs: £1800
- Payment deposit debited from bank account: £300
- VAT to be collected from HMRC: £300
Create an expense to record this transaction, using a split. Split the transaction by adding 20% VAT to the first split as this is the cost of the product & VAT, then add a negative split of –1500 (£1800 / 20%) to cancel out the gross labour charge. This will display the desired result.
How to create an expense manually to record the split:
- Go to 'Expenses' from the main menu
- Select 'New Expense'
- Click ‘Create manually’
- Key in the information required on the first line
- Add a split to account for the VAT
- Attach documentary evidence
- Press ‘Done’, and this new expense will be added to your list of expenses on the ‘Expenses’ page
Please check the screenshots below to see the relevant calculations:
Match/Attach document to match the expense to the transaction: How to manually match an expense to a bank transaction and mark it as paid?
Go to your VAT return page and check the report gives you the expected amount of VAT owed: