Troubleshooting – Xero – Overpayments with VAT/Tax

Note: This usually just relates to users operating the Cash VAT/Tax Scheme with customer or supplier payments on account.

Symptom: Account balances are correct but VAT returns are incorrect.

Cause: Limitation in Xero to post overpayments with VAT.

Explanation: Xero allows either Prepayments or Overpayments to be entered. Prepayments cannot be posted to an Accounts Payable or Receivable Control Account but can be posted with any VAT rate.

Overpayments can only be posted to the Accounts Payable or Receivable Control Accounts and with No VAT (outside the scope of VAT/Tax).

It’s therefore not possible to enter a transaction posted to the Debtors or Creditors Control account with VAT.

Movemybooks approach: Since the system limitations in Xero prevent us from converting accounting and VAT data correctly, we’ve opted to ensure the accounting data is correct.

Fix: To prevent duplicating figures on VAT Returns of different periods, a manual adjustment on the next few post conversion VAT Return submissions is likely to be necessary. You might like to consider contacting Xero about this issue.

Associated link:

AccountingWeb discussion