VAT forecast

Overview

VAT is a classic liability that can have a big cash flow impact. It consists of a few different movements that should be forecasted differently. In this guide, we walk through these movements.

The key is to balance how much work the forecast needs with how accurate it is.

If you're optimizing for simplicity, simple ways to forecast VAT could also be to apply last month's value to all future periods (assuming it remains constant) or forecast the VAT liability as a percentage of revenue.

Basics

The VAT liability can be split up into four different movements:

• Beginning value

• Additions during the month

• Detractions during the month

• Settlements during the month

Beginning

The beginning value is relevant to include as liabilities should be accumulated.

The formula can reference the ending value of the last period.

Additions and subtractions

To forecast the additions and subtractions during the month, you must estimate which P&L and balance sheet movements include VAT.

You can decide how detailed you want your model to be. Relying on assumptions might be sufficient to create an accurate forecast.

We recommend creating subtotals for "Total costs" and "Total income" to make those steps more transparent.

Settlements

To estimate VAT settlements, you must first define the cadence: bi-annual, quarterly, or monthly.

After that, you can use if statements to create a forecast with different properties for each month of the year.

Map VAT accounts from the general ledger

The mapping to your VAT accounts ultimately depends on how your general ledger is set up.

Sometimes, we see users map all VAT accounts to the group total. Sometimes, they have VAT accounts that fit the individual rows.

Bridging actuals and forecasts

How you structure forecasts on different rows will ultimately depend on your bookkeeping workflows.

Your forecasting logic should mimic your bookkeeping steps.

Refer to your bookkeeper to understand the journal entries that enter and leave each account throughout the year to undestand how you should set up your forecast.