How to set up a VAT liability account code in the Chart of Accounts?

This article covers setting up a VAT liability account code in the Chart of Accounts so it can be used as the Tax: Liability (VAT) default and selected when posting VAT payments or refunds via a cash journal. If you are looking to post the actual VAT payment once the account is configured, see [How to post a VAT payment using a cash journal].

Setting up the VAT liability account code in the Chart of Accounts

Your VAT liability account (sometimes called the VAT payments and refunds control account) needs three specific usage flags ticked in the Chart of Accounts before it will work correctly. Without the right usage settings, the account will not appear as an option when selecting the tax liability default or when raising a cash journal for the payment.

The three usage flags required are:

• 'Tax' – this makes the account available for tax postings and allows it to be selected as the Tax: Liability (VAT) account default
• 'Sale' – this makes the account available when raising a cash journal for a VAT payment or refund
• 'Purchase' – this makes the account available for both sale and purchase cash journals

Important: Do not tick 'Bank Account' on this account code. The 'Bank Account' flag is used for accounts that populate the cash book and appear in Bank Reconciliation. Your VAT liability account is not a bank account and should not be set up as one.

To configure the account:

1. Navigate to Chart of Accounts
2. Search for and open your VAT liability account code (for example, 31060: VAT Payments & Refunds)
3. Select 'Edit'
4. Select the 'Usage' tab
5. Tick 'Tax', 'Sale' and 'Purchase'
6. Confirm 'Bank Account' is not ticked
7. Select 'Save'

Assigning the account as the Tax: Liability (VAT) default

Once the account code is configured, assign it as the Tax: Liability (VAT) default in Account Defaults. This tells iplicit which account to use when finalising a VAT return and creating the liability journal.

1. Navigate to Account Defaults
2. Select the 'Tax' sub-group from the left-hand panel
3. Locate 'Tax: Liability (VAT)' in the list
4. Select the row and assign your VAT liability account code
5. Save the change

Once this default is set, iplicit will use this account when you submit a VAT return, and it will be available to select when posting the VAT payment via a cash journal.