I don't think I completely get how gnucash handles VAT.

I'd like to settle the VAT account in gnucash. Each quarter the governments sends a bill of the total VAT owed (VAT on sales - VAT on purchases)

After paying the bill, I'd like to reset the two Liabilities accounts (VAT on purchases and VAT on sales) to zero, to be able to have a good view on the VAT that will be owed next quarter.

If I understand it correctly, the account VAT on sales is a liability I have. The account VAT on purchases however, is not a liability as it can be deducted from the VAT on sales? Is this correct?

If so, how can one input this in gnucash?

  • 1
    Please edit your question to indicate clearly which jurisdiction you are requesting information about. As it currently stands, european-union is not in itself a VAT state but member states within the Union are and each may have differing discrete rules which will impact any answer.
    – graham
    Nov 13, 2021 at 13:04

1 Answer 1


From what you have described thus far, I think you are over complicating matters no matter what the regime is.

In the most basic of formats, you would need to have one control account for VAT which will receive transactions for both input and output tax. For example, with a 20% VAT rate a sale amounting to 120 of whatever currency will reflect 100 Dr to the Sales account and 20 to the single VAT control account. A purchase of 60 will generate a 50 Cr to the purchases account and 10 Dr to the single VAT control account and if they were the only two transactions, your VAT liability will be 10. If you are required to pay the 10 over then the accounting will be Dr Bank, Cr VAT control leaving the VAT control account at 0.

However, things aren't always that simple as in the meantime, there may be further transactions outside of the VAT ¼ being settled where the debits and credits will continue to accumulate so it may be unlikely that the account will ever stand at zero but your VAT database in the software will assist in reconciling your VAT return.

At the next ¼ return of course, transactions which have occurred in the meantime will be accumulated giving you the data you require to complete your next return and so it will continue.

If you jurisdiction is the United Kingdom (HMRC) there are different VAT regimes for different business styles.

This GNU reference referring to HMRC explains more as follows:

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