The VAT clearing journal

What is this page about: Why input and output VAT accounts need clearing after a return is filed, and how to post the clearing journal entry yourself. VAT clearing in Light is a manual journal entry, posted by whoever files VAT once the return is in.

# On this page

• Why clear input and output VAT
• Find the balances to clear
• Post the clearing journal entry
• Best practices
• Related articles

# Why clear input and output VAT

Each tax code's posting rules send its tax to a ledger account: input VAT accounts for Purchase-type codes, output VAT accounts for Sales-type codes. Whether those land in one combined account or several separate ones depends on how your tax codes are set up.

Once a return is filed, those balances have been reported to the tax authority. Left alone, they carry forward and mix with the next period's activity, which makes it harder to see what's new. Clearing zeroes the input and output VAT accounts for the period and moves the net amount to a VAT liability or VAT receivable account, where it stays until it's paid or refunded.

You post the clearing entry yourself as a regular journal entry, choosing the ledger account for the liability or receivable side. Light has no automatic clearing run for VAT, unlike FX revaluation at period close.

# Find the balances to clear

1. Go to Accounting > Transactions.
2. Filter Account to the output VAT account (or accounts) your Sales tax codes post to.
3. Set the Posting date range to the filed period and note the balance.
4. Repeat for the input VAT account (or accounts) your Purchase tax codes post to.
5. Compare both balances with the totals you reviewed on the VAT return before filing, so the clearing entry matches what you submitted rather than anything posted since.

# Post the clearing journal entry

1. Go to Accounting > Journal entries.
2. Click Create journal entry and choose Single.
3. Set Entity, confirm Currency, set Posting date to a date in the current open period, and enter a Description, for example "VAT clearing - Q3 - UK entity".
4. Click + Add line item and post the output VAT account's balance to zero it.
5. Click + Add line item again and post the input VAT account's balance to zero it.
6. Click + Add line item once more for the net difference, posting it to your VAT liability or VAT receivable account so the entry balances.
7. Check that Total debit and Total credit under the grid match, then click Post. If your company has a published approval workflow for journal entries, the button reads Submit for approval instead.

The totals under the grid are a running check as you type. The entry has to balance before it will post.

If output VAT is higher than input VAT, the difference is a liability: you owe the tax authority, so credit it to the VAT liability account. If input VAT is higher, the difference is a receivable: you're due a refund, so debit it to a VAT receivable account.

# Best practices

• Post the clearing entry after the return is filed, so it matches what was submitted.
• Keep the clearing entry's period and entity the same as the return's, so the balances you filtered on stay reconcilable to the entry.
• Use one description pattern, entity and period, so these entries are easy to find later.
• If the input and output VAT balances don't match the totals on the return, look for a mis-coded transaction posted after your last review. Correct that transaction instead of adjusting the clearing entry to force a match.

# Related articles

• From tax codes to a VAT return
• Producing and reviewing the VAT return
• Filing, evidence and corrections
• Creating Manual Journal Entries

Also searched as: clear VAT accounts after filing, VAT liability journal entry, input output VAT clearing, post VAT payable, VAT receivable journal entry, month-end VAT clearing.