How to get the best out of Value Added Tax (VAT) in Xero.

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As part of the CX team based in the UK, I see the questions our customers ask about Value Added Tax (VAT). We’ve tried to make VAT as easy as possible. So, here are my Top Tips and Tricks for getting the best out of VAT in Xero.

Xero uses a single VAT Account within the chart of accounts for all transactions. When filing your Value Added Tax, it’s possible to submit both monthly and quarterly returns. These are directly uploaded to HMRC using your online Agent ID and Password.

When doing your submission, to file successfully, please make sure you check the following:

Make sure that your HMRC password is under 12 characters. If it’s longer, you will not be able to submit.
When you go to file, remember that the filing period for that return must be open with HMRC. If it isn’t, the return will fail within the organisation.

You might find this Help Centre page helpful if you have any other issues.

When setting up an organisation that is VAT registered, you will need to do the following:

Enter all of your VAT settings eg VAT Scheme and VAT Number within the Financial Settings page (Settings > General Settings > Financial Settings).
In the organisation, publish all your past VAT periods which were filed in any previous accounting software or that were manually filed outside of Xero. To do this you can go to Reports > All Reports > VAT Return (make sure to publish these in sequence).

By doing the above, you make sure any transactions dated in an earlier VAT period but entered after that VAT Return is published, will be included in the current VAT Return as a late claim transaction.

It’s also possible to review all transactions picked up in a VAT return from within the VAT Audit report of the return. This will display transaction on a line by line basis.

We also have a great Help Centre page with more information to help you successfully file your VAT Return with HMRC from Xero.

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