If you’re managing earmarked reserves in EasyPC Accounts, it’s important to understand how VAT should (and shouldn’t) be handled in relation to those reserves.
Key Principles
- Reserves should be considered VAT-free
Most Parish Councils use the Receipts & Payments method of accounting. VAT on supplier invoices is reclaimable under Section 126 of the VAT Act. Therefore, when a transaction is allocated to a reserve and includes VAT, only the net amount (excluding VAT) should be considered part of the reserve. The VAT element will ultimately be reclaimed and returned to the General Reserve. - The ‘Include VAT’ option may cause confusion
EasyPC does associate VAT with transactions—even those linked to a reserve. However, for practical purposes, VAT should be ignored when managing or reviewing reserve balances. Including VAT in reserve reports may give a misleading picture. This option may be removed in a future version of the software. - Transfers between reserves should be made net of VAT
When moving funds between reserves, always transfer the net amount only. This follows standard practice: VAT-registered organisations never capitalise reclaimable VAT into reserve or cost centre balances.
Summary
Do not try to track VAT within reserves in EasyPC.
This adds unnecessary complexity and can distort financial reporting.
Simply allocate and transfer the net cost (excluding VAT) to reserves, and manage VAT separately through your standard reclaim process.