These instructions apply to you if you have QuickBooks Release 3 or higher. To check the release number, in QuickBooks press F2 and reference the Product line. It is recommended that you update QuickBooks to R3. To update QuickBooks, from the Help menu select Update Quickbooks, and then click Update Now.

This information applies to those who:

• currently use QuickBooks 2006, 2005, or 2004
• report VAT on a cash basis (Cash VAT scheme)

Important: If you used the Multicurrency feature, you cannot upgrade to QuickBooks 2008. Tell me more.

In earlier versions of QuickBooks we were unable to record a "Filing Date" for the items that were included in cash based VAT returns. This meant that if you entered transactions to earlier months after the VAT return had been submitted, you would have had to manually add these items to your next VAT return. Users were required to reconcile their VAT account and remember to manually add transactions like these – thus increasing the likelihood of errors.

The new VAT functionality in QuickBooks 2008 has been designed such that QuickBooks now searches the entire VAT account (not just the VAT period) and identifies entries that are not included in previous VAT returns – i.e. all transactions that are not marked by a "Filing Date" in the VAT control account. The benefit for you is that your VAT Control account will always agree to the VAT 100 report.

The first and crucial step in this process occurs when you upgrade your company files from earlier versions to QuickBooks 2008. At the point of upgrade, QuickBooks needs to read all the entries in your VAT Control account and identify what type of VAT transaction each entry is (VAT on sales, VAT on purchases, VAT payments to HMRC and refunds etc).

The following housekeeping steps are important before you enter new transactions to your company file, so we recommend that you complete them. If in doubt then please consult your accountant.

The example dates we use here

• VAT reporting periods March/June/Sept/Dec.
• The last VAT return submitted was Sept.
• Payment made to HMRC in October (following month).
• The last but one VAT return submitted was June.

Open your company file in your current version of QuickBooks:

1. Make a backup of your company file.
2. From the Reports > Accountant & Taxes menu create and print a Trial Balance report.
3. From the Reports > VAT menu, create a VAT 100 report each for your last 2 VAT periods (in our example 30 June and 30 Sept). Print these reports and write "Pre-upgrade" on it.
4. Verify that the Trial Balance report (VAT Control line) matches the amount in Box 5 of the VAT 100 report. (in our example 30 Sept). It should also be the amount that you paid to HMRC the following month (Oct in our example).
   • If the balances do not match, you may want to consult your accountant before proceeding. This is because you may have underpaid/overpaid historically and not reconciled your VAT account.
5. Close your older version of QuickBooks.

Install and open QuickBooks 2008.

Before you upgrade your company file, you should download all product updates. You can do this by going to the Help menu and selecting Update QuickBooks. You will need to shutdown and re-start QuickBooks for the changes to take effect.

1. To start the upgrade process, go to the File menu and select Open or Restore Company.
2. Click Open a company file and click Next.
3. Browse and find your company file (the .QBW file that you just closed) and then click Open.
4. Follow the onscreen instructions.
5. At the final step in the upgrade process you will be asked for your last submitted VAT date. (although this would be 30 Sept in our example, for cash based VAT we recommend you enter the date of your last but one return – in our example 30 June – this way you can actually File VAT for one quarter based on historic records and compare against your previous version VAT 100.

From your upgraded company file, print your trial balance and compare it to the trial balance from your older version of QuickBooks (Make sure the dates are the same in both reports):

1. Create a VAT 100 to replicate the last return in your older version of QuickBooks
   • Go to the new VAT menu and click VAT 100 Report.
   • Create a VAT 100 report for the last submitted return (in our example the June to Sept quarter)
   • Click Refresh at the top of the report.
2. Compare the figures for each of the boxes between your Pre- and Post-upgrade VAT 100 reports (in our example the Sept VAT return). From the VAT menu, click on File VAT In the From and To fields enter the dates for your last submitted return (1 June to 30 Sept in our example)
3. If all the figures match and you do not have any figure in the "Uncategorised Tax Amounts" line, then click on "File VAT Return" and complete the process of entering the HMRC payment – using the same date and reference number as the original cheque – point 2 above.

   If the balances do not match, you should see a line called "Uncategorised Tax Amounts" on the Post-upgrade VAT 100. Uncategorised amounts are transactions that QuickBooks 2008 could not assign to a specific VAT return box (in other words we could not identify whether the items were related VAT on sales, VAT on purchases or HMRC VAT payments/refunds).

   Before you continue further, you need to adjust the VAT return boxes affected by these Uncategorised amounts.

   How do I adjust for Uncategorised Tax Amounts in my VAT 100?

There could be various reasons for this difference (e.g. past under or overpayment). Consult your accountant.

You're now ready to use your upgraded company file to track VAT. From now on, use the File VAT feature to remit VAT owing or receive your VAT refunds.