VAT on Aged Payables over 6 months

You are required to repay input tax if you do not pay the suppliers within 6 months of the relevant date.

The relevant date is the later of:
• The date of the supply, or
• The due date for payment

For example, if your supplier allows you to pay 30 days after the invoice date, then you are not required to repay any input tax to HMRC until 6 months from this latter date.

Please note that the repayment is based upon the unpaid amount at the relevant date.

How to access the data in Xero

1. Run the report for Aged Payables Detail
2. Choose criteria:
   • Date: End of this month
   • Ageing period: 6 periods of 1 month
   • Ageing by: Due date
   • Columns: Keep the default selection and include ‘Outstanding VAT’
   • Click Update
   • Make note of any invoices within the ‘Older’ column and the corresponding outstanding VAT

How to repay input VAT to HMRC

1. Adjust the VAT return – Box 4 with the VAT amount and Box 7 with the invoice amount
2. Post adjustment without creating an accounting transaction
3. Create a separate VAT account – 820A ‘VAT on Aged Payables > 6 months’. This will allow you to keep track on the invoices where VAT has been paid back to HMRC.
4. Post a manual journal by debiting 820A and crediting 820 with the VAT amount from step 1. Please include details of the invoice (name of the supplier, invoice number etc) and upload a copy of the invoice.

When the invoice is eventually paid

1. Adjust the VAT return – Box 4 with the VAT amount and Box 7 with the invoice amount
2. Post adjustment without creating an accounting transaction
3. Post a manual journal by debiting 820 and crediting 820A with the VAT amount from step 1.

For HMRC guidance, please visit the link below:
Relief from VAT on bad debts (VAT Notice 700/18) – GOV.UK (www.gov.uk)