Change your VAT scheme in Xero

Change your organisation's VAT scheme in Xero, in consultation with your adviser.

Consult with your accountant or bookkeeper to make sure you understand the implications of changing your VAT scheme, and that you are still accurately reporting to HMRC.

Before you start

Some implications of changing your VAT scheme in Xero

Xero generates the VAT Return using the VAT scheme applied at the time it generates the return, not the VAT scheme in place during the period of the return. Depending on whether you change from the accrual scheme to the cash scheme, or the other way, Xero may duplicate VAT entries from a previous return period, or may omit them.

If you are already using Xero, wait till the end of the tax period to change your scheme in your financial settings.

It is very important that you and your adviser review your VAT returns for periods after the change to make sure all VAT is correctly accounted for.

Changing to or from a flat rate scheme

When you change from a standard VAT scheme to either of the flat rate schemes, Xero automatically alters your chart of accounts. For example, your asset and expense account default tax rates change to 'No VAT'.

If you change from a flat rate scheme back to a standard scheme, the chart of accounts does not automatically change back to how it was for standard VAT. You need to make those changes manually.

Change your scheme with HMRC

In consultation with your adviser, obtain HMRC approval to change your VAT scheme, and confirm the date the change is effective.

Review Xero transactions, reports and lock date

Before you change your VAT scheme in Xero:

  1. Check all transactions in Xero are correct and complete to the end of the last VAT period before the planned change.
  2. Run and publish all VAT reports with the current VAT scheme.
  3. Set or change the lock date to the end of the VAT period before the planned change in scheme.

Change VAT scheme in Xero

  1. In the Settings menu, select General Settings.
  2. Under the Organisation heading, click Financial Settings.
  3. Under VAT Scheme, select the method you are changing to.
  4. Click Save.

Check VAT reports after changing your VAT scheme in Xero

After changing your VAT scheme in Xero, check your VAT reports for the following:

  • The reports include all entries.
  • Entries already reported aren't repeated.
  • If you are changing from a cash scheme to an accrual scheme, the new VAT report may not include payment of unpaid invoices and bills raised before the change. Talk to your adviser about making an adjustment on your next VAT return to include the payments.
  • If you are changing from an accrual scheme to a cash scheme, the new VAT report may include payment of unpaid invoices and bills raised before the change for the second time. Talk to your adviser about making an adjustment on your next VAT return for these duplicates.
  • If you change from a standard VAT scheme to another standard VAT scheme, the VAT Reconciliation report won't be correct. This is because Xero generates this report based on the VAT scheme applying at the time it's run. Rerun the VAT Reconciliation report for all tax periods since conversion to Xero.