VAT

Your VAT return is derived from the same ledger everything else in the accounting app is derived from. There is no separate VAT workbook to keep in step: whatever you booked — an invoice, a categorized bank transaction, a split, petty cash — feeds the nine boxes directly.

Where the nine boxes come from

Every posting path in ac-co.ai follows one convention: VAT is never income and never an expense. The profit-and-loss side of a transaction is booked net, and the VAT itself goes to your VAT control account. That is true whichever screen you booked from, so your profit figure is not quietly inflated by VAT you are going to reclaim, and the control account really does mean "VAT".

There is also exactly one calculation of "how much VAT". The VAT report, the VAT dashboard, the month-end close checklist and the pre-submission check all read the same computation, so the figure you sign off in the close is the figure the return carries. If that calculation cannot run, ac-co.ai refuses to produce a number rather than falling back to a different one.

A few treatments carry no VAT posting on purpose, because no VAT was charged to carve out — reverse charge and postponed import VAT ride as line metadata and appear in the boxes, without inventing a balance-sheet position that does not exist.

Check the figures before you file

Open Reports and pick the VAT Report tab for the period. It breaks the return down line by line — by tax point, category, treatment and rate — using the same box arithmetic the return itself uses. (Because each line rounds on its own, the breakdown can differ from the return total by a penny or two; the return is the authoritative figure.)

The Month-end close checklist in Settings → Accounting periods reports the same net VAT due, so a close sign-off and the return cannot disagree.

Filing, and what it does to your books

VAT returns are submitted through ac-co.ai's HMRC integration: pick the open obligation and choose Submit return. You will see each box labelled the way HMRC labels it (Box 1 — VAT due on sales and other outputs, Box 6 — Total sales excl. VAT, and so on), a check of the boxes against a fresh server-side recomputation, and then the submission itself.

Once HMRC accepts the return, ac-co.ai posts a settlement entry that clears the net VAT due out of your VAT control account and into a VAT liability account for filed returns. It is dated at the period end (the liability crystallises on the last day of the period, not on the day you happened to press submit), and it posts once per period — a resubmission or an amendment does not double it.

If your income tax is on the cash basis

VAT and income tax have different timing rules, and ac-co.ai keeps them apart. If your books are on the cash basis for income tax but you are VAT-registered on a non-cash VAT scheme, output VAT on a sales invoice is recognised when the invoice is issued (HMRC's tax point rules), while no profit-and-loss account is touched until the money moves. Your VAT return and your cash-basis profit therefore both stay correct.

The Flat Rate Scheme

Set your scheme in Settings → Accounting setup: choose Flat rate under Scheme, then enter your Flat Rate Scheme % — your HMRC-assigned trade-sector percentage.

From then on:

• Boxes 1 and 6 use VAT-inclusive turnover, as VAT Notice 733 requires — the flat percentage is applied to your gross takings, not to a net figure.
• Your invoices still charge and record the full VAT you charged your customer. That is what your customer was invoiced, and it is what your ledger says.
• The difference is posted for you at the period end. Immediately before the filing entry, ac-co.ai posts the gap between the VAT you charged and the flat amount you actually owe to a Flat Rate Scheme surplus income account — HMRC treats that surplus as business income. Your VAT control account therefore ends the period at exactly the amount the return declares, instead of accumulating a difference nobody can explain.
• Your scheme and percentage are tracked with the dates they applied from. Flat-rate percentages legitimately change mid-year — the first-year 1% discount expires twelve months after registration, and the 16.5% limited-cost-trader rate is tested period by period. Because the history is kept, a change today does not silently re-write a return you filed last quarter.

Partial exemption

If you make exempt supplies as well as taxable ones (many landlords, financial and insurance intermediaries, education and health providers do), you cannot simply reclaim all your input VAT — VAT Notice 706's partial-exemption rules and de minimis limits decide how much you may recover.

Before every VAT submission — whether the figures come from your ledger or from a bridging spreadsheet — ac-co.ai measures your exposure for that period: your exempt supplies as a share of turnover, and an upper bound on the input VAT that could be attributable to them. It deliberately errs on the cautious side, so it can over-warn but never under-warn. There are three outcomes:

• Clear — nothing to do; filing proceeds normally.
• Borderline — recorded as a finding for the record. Filing still proceeds.
• Exposed — filing is held until somebody has looked. The message tells you what it found (exempt supplies as a percentage of turnover, and the input VAT at stake) and names the two ways forward: an owner or admin records a scope acknowledgement for that period — "reviewed; full recovery is correct here" — or you elect and lock a Notice 706 method and file on that basis.

An acknowledgement is pinned to the exact figures it reviewed. If the underlying transactions change afterwards, it stops applying and the period is put back for review, so a review can never quietly cover numbers nobody saw.

Bridging (spreadsheet) returns

If you keep your VAT figures in a workbook, you can still file through ac-co.ai's bridging route. Two things differ from a ledger-derived return:

• No control-account settlement entry is posted. The figures came from your spreadsheet, not from this ledger, so settling a ledger control account against them would be meaningless.
• The partial-exemption check still runs, because it is derived from your ledger rather than from what the workbook claims.

Correcting VAT after you have filed

MTD VAT has no amend operation, so corrections go on your next return (or on a VAT652 above HMRC's threshold). ac-co.ai validates a correction that carries VAT and refuses one that would declare the same supply twice. See Corrections & audit history for the full picture, including how a filed return stays reproducible exactly as filed.