Using the Automatic Clearing programs, you check for any payments that you entered without reference to any invoice, and clear them against the appropriate vendor or customer item.

You carry out this step to ensure that the correct amount of deferred VAT can be recognized.

You convert any remaining unassigned payments to down payments (manually).

Normal payment items have no tax code; down payments have a target tax code. You have to pay tax on all open payments, so you have to convert all payments to down payments so that they will have a target tax code and thus be included in the VAT return.

We recommend that you post all unassigned payments as down payments to avoid this step.

You transfer the tax items from the deferred VAT account to the tax liability account.

To do so, you use the standard Deferred Tax Transfer program.

The program checks the VAT items on the deferred VAT account. If the report finds an invoice and a payment for a VAT item, it recognizes that the VAT is due and thus assigns a target tax code to the VAT item, and transfers the VAT to the target tax account.

You run the Secondary Events program to post the VAT on those business transactions that require it a secondary event in order for the VAT to be recognized.