September 23, 2026
Switching to Xero or QuickBooks mid-year in the UK: standard, cash accounting or flat rate, and what has to match on day one
The short answer: set the new software to the same VAT scheme HMRC has on record, cut over on the first day of a VAT period, and bring open invoices across one by one, not as a single opening balance. The reason is that the three common schemes treat an unpaid invoice differently. Under the standard scheme its VAT has already been declared; under cash accounting it has not, and becomes due only when the customer pays. A lump-sum opening balance loses that distinction, and the first VAT return in the new software is wrong in one direction or the other. This guide works through each scheme from HMRC’s own notices and the vendors’ settings.
The one table to read before cutover
| Scheme | When VAT on a sale is due | Open invoices at cutover | Setting in the new software |
|---|---|---|---|
| Standard (invoice basis) | When the VAT invoice is issued | VAT already on a filed or current return. Import so it is not counted again. | Xero: Accrual. QuickBooks: Standard. |
| Cash accounting | When the customer pays | VAT not yet declared. Import each invoice with its VAT so the payment triggers it. | Xero: Cash. QuickBooks: Cash. |
| Flat rate | A fixed percentage of VAT-inclusive turnover, on the basic or the cash-based turnover method | Depends on which turnover method you use; match it. | Xero: Flat Rate Accrual or Flat Rate Cash. QuickBooks: tick Flat Rate Scheme and enter the percentage and date. |
Xero’s help on changing VAT scheme lists exactly four: Cash, Accrual, Flat Rate Accrual and Flat Rate Cash, set under Accounting settings, Financial settings. QuickBooks Online UK asks for Standard or Cash when you set up VAT, with a separate Flat Rate Scheme box that takes your percentage and registration date.
Cut over on a period boundary
Pick the first day of a VAT quarter (or month, for monthly filers). The old system files every return up to the cutover; the new one files everything after it. Xero’s own guidance is to finalise VAT returns for earlier periods before changing the scheme setting, and HMRC’s cash accounting notice says you can only leave that scheme at the end of a tax period. A mid-quarter cutover means one return built from two ledgers, which is where errors hide.
Standard scheme: stop the VAT being counted twice
Under the normal method, output VAT is due when you issue the invoice and input VAT is reclaimable when you receive the supplier’s invoice, paid or not. So on the cutover date, the VAT on every open sales and purchase invoice is already on a return filed from the old system. Bring the invoices across so customers and suppliers still show what they owe, but make sure they do not feed the first return in the new software. In practice that means dating them before the first new period and reconciling the VAT control account to the last return’s liability, not to zero.
Cash accounting: the scheme migrations break most often
HMRC’s Cash Accounting Scheme notice (VAT Notice 731) is the source for everything here. You account for VAT on sales when you are paid, and reclaim VAT on purchases when you pay. To join, you expect taxable supplies of £1.35 million or less in the next year; you must leave once they pass £1.6 million. Some transactions sit outside the scheme even for members: invoices where payment is not due in full within six months, invoices issued before the supply is made, imports, and supplies under the domestic reverse charge.
The migration consequence is direct. On the cutover date, the VAT on every unpaid sales invoice has not been declared. If those invoices arrive in the new software as one opening-balance figure, the payments that clear them carry no VAT, and it never reaches a return. They have to arrive as individual invoices with their VAT codes, so that each receipt in the new system triggers the right amount. The notice also says your records must cross-refer payments to the invoices they settle, which is one more reason to keep invoice-level detail rather than a balance.
Two rules matter if the scheme itself is changing at the same time. The scheme cannot be applied retrospectively; it starts from the beginning of a period. And when you join from the standard method, you must identify and exclude payments for transactions already accounted for, so the VAT is not paid twice.
Flat rate: match the method, not just the percentage
HMRC’s Flat Rate Scheme notice (VAT Notice 733) sets the entry point at taxable turnover of £150,000 or less excluding VAT, and the exit at total income over £230,000 for the year. You pay a fixed percentage of VAT-inclusive turnover. A limited cost business uses 16.5% whatever its sector, and because the test is run each period, a business near the line can move between 16.5% and its sector rate. In the first year of VAT registration you take 1% off your rate. Input VAT is generally not reclaimed, except on a single purchase of capital goods of £2,000 or more including VAT.
The scheme has two turnover methods: basic, which follows invoices, and cash-based, which the notice calls the flat rate equivalent of cash accounting. You cannot use the Cash Accounting Scheme alongside it. For migration, the method decides how open invoices behave exactly as in the sections above, so Xero’s Flat Rate Accrual versus Flat Rate Cash choice must match what you have been doing. One more trap: Xero notes that moving from flat rate to a standard scheme does not update the chart of accounts, so default tax rates have to be changed by hand.
Making Tax Digital still applies to the move
HMRC’s Making Tax Digital notice requires every VAT-registered business to keep digital records and file through compatible software, with digital links between programs. A migration done by re-keying totals into a spreadsheet is the weak point. Move the data file to file, and keep the old system’s records for the periods it filed. If Income Tax MTD also applies to you from April 2026, our MTD for Income Tax timing guide covers the quarterly updates.
A five-step pre-cutover check
1. Confirm your scheme and turnover method with the last VAT return and any HMRC letters. 2. Choose the cutover as the first day of a VAT period. 3. File the last return from the old system and export its VAT report and detail. 4. Export open sales and purchase invoices individually, with VAT codes. 5. After import, reconcile the new VAT control account to the right figure: the last return’s liability under the standard method, and the VAT inside unpaid invoices under cash accounting.
Frequently asked questions
Can I switch accounting software in the middle of a VAT quarter?
You can, but it means one return built from two systems. Cutting over on the first day of a VAT period is cleaner: the old software files every return up to the cutover and the new one files everything after it.
What happens to unpaid invoices if I use the VAT Cash Accounting Scheme?
Their VAT has not been declared yet; it becomes due when the customer pays. Import them into the new software as individual invoices with VAT codes, so each payment carries its VAT onto the next return. A single opening balance loses it.
Can I use the Flat Rate Scheme and the Cash Accounting Scheme together?
No. HMRC’s notice says you cannot use both, but the Flat Rate Scheme has its own cash-based turnover method that works in a similar way. Match that method in the new software.
Does Xero or QuickBooks change the VAT scheme for me when I migrate?
No. You choose it in settings: Xero offers Cash, Accrual, Flat Rate Accrual and Flat Rate Cash; QuickBooks Online UK offers Standard or Cash plus a Flat Rate Scheme option. It must match what HMRC has on record.
If your source is Sage 50, this comparison of the Xero and QuickBooks conversion routes covers how VAT history arrives on each.
Moving a Canadian business instead? The GST/HST version of this check covers reporting periods, unclaimed ITCs and the Quick Method.
Related service: Sage 50 → Xero · QuickBooks → Xero · Conversions in the UK