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Thanks, Roy.

That paper is excellent. Happily, our posts above tie in extremely well with the official spec. Perhaps we should emphasise the following (mainly for lurkers here!):

1. The "Cash-Accounting" mechanism is permitted (in the UK) on Purchases (Crs/Payables), as well as Sales (Drs/Receivables).

2. There seems to be an exception, on Purchases, regarding some unusual purchases - eg, Imports. See points 5.5 and 5.6. The VAT on these transactions apply at the time of Invoicing. In FA, I assume these types of purchases would need to be tagged separately, and, therefore, treated separately in the VAT reports.

3. Our posts above have not covered the rules and processes involved in Joining the scheme, Leaving the scheme, Re-joining, Insolvency, etc. Presumably, most/all of these would be outside the scope of FA anyway?

4. I didn't see any advice re how best to handle national VAT-Rate changes. This can be traumatic! Maybe best to have VAT-codes, assign a new code to each new Rate, and start using the new code - as appropriate?

5. Auto-allocation of Credits: See point 5.7. I thought the book-keeper might have to manually allocate every credit against the relevant debits. However, 5.7 says otherwise, which greatly simplifies the user's actions, and makes FA EVER more beneficial!! As I mentioned, I already have implemented "Auto-Allocation" code, which we might be able to use in FA. A matter not mentioned in the HMRC spec is, eg, what to do if Invoice-123 is issued, and it's cleared later by Credit-456. Then Inv-123 is withdrawn... and Cr-456 is freed up, to be allocated against other debits. The automatic mechanism covers all this, and always re-allocates the remaining credits against the remaining debits - ALWAYS oldest first (as per 5.7). So, the VAT summaries emerging might show changes for previously closed VAT-periods, in which case the current VAT balances must be adjusted by the VAT Payments/Refunds made to-date, to arrive at the current VAT payable/refundable. (Hope this makes sense!).

6. I would, very respectfully, suggest that the official approach for handling part-payments against invoices with multiple VAT-rates, as per 8.2, is not as good as the mechanism in the above posts. They seem to be calculating/allocating VAT against the VAT-summary on the invoice (I don't know what would happen if they had MULTIPLE non-zero rates in the example!), rather than against the individual line-items - as I suggested. With the line-item approach, the VAT summaries should show all VAT amounts at the exact rates, and this can be useful in auditing, etc. With the HMRC approach (I think!), the VAT summaries might not reflect any of the standard rates. The overall result, obviously, is still exactly the same in both cases.

So... whereto from here!!

  - M.

Hi again, Janusz,

Great!

If it's of any use to any of you, I'll be delighted to help on this matter. Only in recent weeks, I wrote a small add-on module in an A/cs system to AUTOMATICALLY allocate all Drs credits against all the debits (oldest first) and to extract the Cash-Accounting VAT summaries accordingly. However, that approach was "unique", and would not suit FA (IMO).

I agree that the overall "best" approach has to be adopted...

However...

AFAIK, this "Cash-Accounting" option is intended only to assist the trader's cash-flow, and with the monthly VAT returns. In annual A/cs, Mgt A/cs, etc, the VAT analyses still need to be done on the standard Accrual basis. In any case, over time, the Cash-A/c VAT reports end up with the exact same data as the Accrual data, except the timing is different...

So... maybe you should leave the Accrual system in FA exactly "as is", and the only tweaks might be:
  - Maybe have an additional system option: Cash/Accounting reports are needed [Y/N]. If Y, the remaining tweaks would be supported... (If possible, avoid this option in the first place!).
  - On Receivables, encourage the user to fully Allocate each Credit against the relevant Debits.
  - For each DB, it will probably be necessary to note which Credits have been allocated against it. The DATEs on the allocations define the VAT-periods.
  - And, on each Credit, note which DBs it has been allocated against. That identifies the relevant VAT-Rates.
  - Or, maybe a separate "Allocations" table could be maintained, and hooked to the parent DBs and CRs. (I know nothing yet about the FA internals, so perhaps all this allocation support is already in there).
  - Obviously, if transactions are edited, these allocations must be edited accordingly.
  - If the Cash-Accounting VAT also applies to the Payables, the do exactly the same with the CRs and DBs there.
  - Finally, and this might be the only "new" feature to be activated in FA, have a separate "Cash-Accounting" VAT report, to show all the VAT activity as discussed above and in the previous posts here.
  - I think all the current GL A/cs, VAT A/cs, etc, in FA would not be changed in any way - I certainly hope so!!

Mike.

I don't know if your approach is adequate... I hope someone else can clarify that point!

However, the system will need to assign the relevant VAT-Period to each transaction, and the relevant VAT-Rate.

Example:
  - Suppose Many Invoices are due for payment, spanning various (old) VAT-periods, and various VAT-Rates.
  - One major payment is received, covering many of those invoices.

That payment (VAT-Incl) will need to be allocated against the relevant Invoices, perhaps fully clearing some of them, perhaps partly clearing others, and perhaps still leaving an unallocated credit balance on the payment (which must be allocated later against new Invoices, or a refund issued).

For each allocation:
  - the VAT-Rate(s) of the Invoice(s) must be used when building the VAT summaries
  - the VAT-Period of the Receipt must be assigned.

Also, I think that some VAT jurisdictions permit "Cash based" VAT returns only on Debtors Payments (eg, a shop). For the Payables, VAT returns still apply on an Invoiced/Accrual basis.

  - Mike