QuickBooks Online can feel overwhelming at first. This guide walks you through the tasks you will use every day, in plain English, with no assumptions about what you already know.
What this guide covers:
✅ How to navigate QBO and find what you need
✅ How to record income and raise invoices
✅ How to review bank transactions
✅ How to upload receipts and bills
✅ How to classify transactions using Classes, Locations, and Projects
✅ How to reconcile your accounts
✅ How to understand and use journals
✅ How VAT works for charitable organisations
💡 Before you start
Make sure you can log in to your QBO account at qbo.intuit.com. If you have any trouble, contact whoever set up your account in the first place.
💡 Haven't bought your subscription yet?
Before you purchase a QBO subscription directly, speak to your accountant first. Many accountants can offer discounted licences for QuickBooks, Xero, and other apps as part of their partner arrangements. It is worth asking — the saving can be significant, and it means your accountant is connected to your account from the start.
This guide is written for small to mid-sized third sector organisations — charities, community groups, and social enterprises. The examples and language are aimed at that context, but most of what is covered applies to any small organisation using QBO.
If you have questions, or something in here does not quite match what you are seeing in your account, get in touch with Cassley Office Solutions — that is what we are here for.
Most third sector organisations receive income in a few different ways — bank transfers from funders, cash donations, or payments matched to invoices already raised. Here is how to handle each one.
Grant Income and Bank Transfers
There are two ways to record grant income in QBO. Both are valid — the right one depends on how you prefer to work.
When a grant payment lands in your bank account, it will appear in your bank feed under Banking / Transactions in the For Review tab. Click on the transaction to expand it and select Post. Choose the correct income account (e.g. Grants Received), assign the correct Class, Location, or Project — whichever applies to your setup (see the Classes, Locations and Projects tab) — attach any supporting document, and click Post. This is the simplest approach and keeps everything in one step.
Go to + New → Bank Deposit, select the correct bank account, add a line for the grant income with the correct account, class, and amount, and save. When the payment then appears in your bank feed, QBO will suggest a Match — accept it to link the two together. Some people prefer this method because it lets you record the income in detail before the money arrives, or because it is how they have always worked. The end result is exactly the same.
QBO will suggest a Match in the For Review tab. Attach any remittance advice or confirmation email using the + icon, then click Match. The income is already recorded — you are just confirming the payment arrived.
💡 Tip: Whichever method you use, stick to it consistently for the same funder. Mixing methods for the same income stream can create duplicates if you are not careful. If you are not sure which approach suits your setup, get in touch with Cassley Office Solutions.
Sales Receipts
A Sales Receipt is used when payment is received at the same time as the sale — for example, cash at an event, a card payment, or a one-off donation. Unlike an invoice, a sales receipt does not create an outstanding balance.
Click + New, then under the Customers column, click Sales Receipt.
Choose or enter the customer name. Set the Payment method (cash, card, BACS). Add a line item with the correct income account, class, and location. Enter the amount.
In the Deposit to field, select the bank account the money went into. Most bank accounts will appear here — select the one that matches. If it was cash you are holding, select Cash on Hand.
Attach any relevant supporting document — a donation form, event sheet, or payment confirmation. Then click Save and close.
💡 Tip: If you receive lots of small cash donations at one event, you do not need a separate sales receipt for each one. Create one sales receipt for the total and attach the event sheet or tally as your supporting document.
Not sure which income account to use?
Check a previous transaction for the same funder or income type and copy what was used. If you are still unsure, ask your treasurer or get in touch with Cassley Office Solutions.
An invoice is a request for payment that you send to a customer. Many third sector organisations raise invoices for hall or room hire, regular tenants, re-charges, or services provided to other organisations.
Creating an Invoice
Click the + New button at the top-left, then under Customers, click Invoice. This opens a blank invoice form.
Alternatively: Go to Sales in the left menu, then Invoices, then click the green Create Invoice button.
Click the Customer dropdown and start typing the name. Select them from the list. If this is a new customer, click + Add new to create their record. Make sure the email address is correct — this is where QBO will send the invoice.
In the table below the header, add a line for each item or service. For each line:
Click Save and send to email the invoice directly from QBO, or Save and close if you want to send it separately. You can also click Print or preview to download a PDF.
💡 VAT on invoices: Whether or not to add VAT to your invoices depends on whether your organisation is VAT registered, and what type of income it is. See the VAT tab for a full explanation. If you are not sure, always check before sending.
Recurring Invoices
If you have regular customers — for example, a tenant paying monthly hall hire — you can set up a recurring invoice so QBO creates and sends it automatically. This saves time and reduces the chance of forgetting.
Set up the invoice exactly as you want it to look each time — customer, line items, amounts, VAT codes.
At the bottom of the invoice form, click Make recurring. A panel opens on the right.
Click Save template. QBO will now handle this automatically according to your schedule. You can find and manage all recurring templates under Settings → Recurring Transactions.
💡 Tip: If a customer's amount or details change, go into the recurring template and update it — do not just edit a single invoice, or the template will still use the old details next time.
What Happens When the Customer Pays
When the payment lands in your bank feed, QBO will suggest a Match to the outstanding invoice. Always use Match rather than adding a new transaction — adding it creates a duplicate. See the Bank Transactions tab for the full process.
Questions about invoicing?
Invoicing can get more complex — re-charges, inclusive vs exclusive VAT, credit notes. If you run into something that is not covered here, get in touch with Cassley Office Solutions and we can walk you through it.
QBO connects directly to most bank accounts and downloads transactions automatically. Your job is to review them, categorise them correctly, and attach supporting documents.
Click Banking (or Bookkeeping then Transactions) in the left menu. You will see all your connected bank accounts listed at the top.
This is where new transactions appear, waiting for you to process them. Click on any transaction to expand it. QBO will suggest one of three actions:
QBO has found a transaction you already entered — such as an invoice, sales receipt, or bill — that matches this bank entry. Use the + icon to attach your receipt or remittance first, then click Match. This is the ideal outcome.
This is a new transaction that has not been recorded yet. Choose the correct Category (account), add the payee name, assign the correct Class, Location, or Project — whichever applies to your setup (see the Classes, Locations and Projects tab) — attach your receipt or supporting document using the + icon, and click Post.
Use this when money has moved between two of your own bank accounts. Select the other account from the dropdown and click Transfer.
Before posting or matching any transaction, attach the relevant document — receipt, supplier invoice, remittance advice, or confirmation email. You can drag and drop directly into the attachments area, or click to browse.
Note: If you are matching to an invoice you already created in QBO, you do not need to attach anything separately — the invoice links automatically.
Enter who the payment was to or from. This trains QBO to suggest the right category next time and keeps your reports clean.
Once you have processed your transactions, click the Posted tab to review what you have done. If you spot a mistake, click Undo to send it back to the For Review tab.
💡 Tip: Review your bank feed at least once a week — it only takes a few minutes. Leaving it until month-end makes it much harder to remember what each transaction was for.
Not sure how to categorise something?
Check a previous transaction from the same supplier or funder and copy what was used. Still unsure? Ask your treasurer, or get in touch with Cassley Office Solutions.
QBO lets you upload receipts and supplier bills so they are stored alongside your transactions. There are several ways to get them in.
💡 Shortcut: upload directly from the bank feed
When reviewing transactions in the bank feed, look for the small + icon on each transaction row. Click it to attach a receipt or document straight to that transaction before you match or post it. Get into the habit of doing this first — it keeps everything linked in one step.
Receipt vs. Bill — what is the difference?
A receipt is proof of something you have already paid for — a shop purchase, for example. A bill is an invoice from a supplier that you have not paid yet.
Method 1: Upload from Your Computer
Go to Banking then Receipts (or Bookkeeping then Transactions then Receipts).
Click Upload from computer. Select your file. Each file should contain only one receipt or bill. Supported formats: PDF, JPEG, JPG, GIF, PNG.
QBO reads the document and tries to extract the details. It will then suggest a Match with an existing transaction, or ask you to Create Expense or Create Bill. Review the details, check the VAT code, and save.
Method 2: Snap with the Mobile App
Open the QuickBooks app on your phone (available for iOS and Android).
Tap Receipt snap, then Receipt camera. Take a clear, flat photo and tap Use this photo.
The receipt appears in your For Review tab in QBO, where you can match or post it.
Method 3: Email Receipts to QBO
Forward any receipt or bill emails to your QBO receipt email address. Find it under Gear icon then Account and Settings then Company. They will appear in your Receipts tab for review.
Creating a Bill Manually
Click + New and select Bill under the Suppliers column.
Choose the Supplier, enter the Bill date and Due date, and add line items with the correct Category, Class, and Location or Project — whichever applies to your setup.
Drag in the PDF or image of the original bill at the bottom of the form, then click Save and close.
💡 Tip — annual bills paid in instalments:
If you receive a bill that covers a full year but you pay in instalments — a Highland Council rates bill, for example — enter it as a single bill in QBO for the full amount. Then every time an instalment comes out of your bank account, match it against that outstanding bill rather than posting it as a new transaction. This keeps all your payments linked to one bill, means you only need to attach the original document once, and saves you hunting for proof of purchase every month.
💡 Tip: Do not upload receipts that show full credit card numbers. Crop or redact these before uploading.
QBO gives you three tools for classifying your transactions beyond just the account category. Understanding the difference between them is key to getting useful reports — especially for grant management and fund tracking.
First: Restricted vs Unrestricted Funds
Before we look at the tools, it helps to understand the distinction between restricted and unrestricted funds, because this shapes how you set everything up.
Money given to your organisation for a specific purpose — a grant to run a particular project, for example. You can only spend it on what the funder agreed to fund. If you spend it on something else, or do not spend it at all, you may need to return it.
Example: A National Lottery grant to run a community gardening project. Every penny must be spent on that project and evidenced accordingly.
Money your organisation can spend on whatever it needs — general running costs, wages, equipment. Donations without conditions attached are usually unrestricted. So is income from room hire, trading, or services.
Example: A general donation from a local business. No strings attached — you decide how it is used.
💡 You can — and usually should — have more than one class for each type. Most organisations will have several restricted classes (one per funder or grant) and more than one unrestricted class too. For example, one unrestricted class for general running costs and another for hall income. This keeps your P&L by Class report readable and useful.
The Three Classification Tools
What is it? Your Chart of Accounts — the fundamental categories like Rent, Office Supplies, Grants Received, Professional Fees.
When to use it: Every single transaction must have an account. It answers the question: what type of income or expense is this?
Example: You pay an electricity bill — categorise it to Utilities.
What is it? Used to identify which fund, grant provider, or income stream the transaction relates to. Each funder or funding stream gets its own class.
When to use it: Every transaction should have a class. Use the class that matches the grant or fund the income or cost relates to. If a cost is for the general running of the organisation and does not fall under a specific funder, use your unrestricted class.
Example: An organisation I know uses one class per funder — Highland Council, National Lottery, general unrestricted — so their P&L by Class report shows exactly how each fund is performing at a glance.
What is it? Used to identify which project or activity the transaction relates to. Each project or activity gets its own location.
When to use it: Locations are useful when one grant funds several different activities and you need to track spending across each one separately. The class tells you who funded it; the location tells you what it was spent on.
Example: A grant from one funder covers a community fridge, a youth club, and a gardening project. Each has its own location so you can report on them individually — all sitting under the same class (the funder).
⚠️ Locations is not available on all QBO plans
The Locations feature is only included in higher-tier QuickBooks Online subscriptions. If you cannot see it in your account, your current plan may not include it. This is not a problem — most organisations can do everything they need through Classes and Projects alone. Check your plan details, or ask your accountant or Cassley Office Solutions.
What is it? A way to track all income and costs for a specific grant or activity across multiple years. Unlike classes, which reset each financial year, a project accumulates everything over its full lifetime.
When to use it: When you have a multi-year grant and need to see at any point how much has been spent in total and how much remains. Each project is tied to one customer (the funder).
Example: A three-year transport project — setting it up as a Project means you can see the running total of spend against the grant budget at any point, across all three years.
Which Tools Should You Use?
You do not need to use all three at once. In fact, for most small organisations, using too many at the same time just makes things more complicated. Here is a simple way to think about it.
⚠️ Not sure which setup is right for your organisation?
This is one of those decisions that is much easier to get right at the start than to unpick later. Every organisation is different — the right setup depends on how many funders you have, how your projects are structured, and what your reporting obligations are. It is always worth talking it through with someone who knows your organisation and has a finance background. Happy to help — give me a call.
Creating New Classes and Locations
To create a new Class:
Gear icon → All Lists → Classes → click New. Enter the class name and save.
To create a new Location:
Gear icon → All Lists → Locations → click New. Enter the location name and save.
To create a new Project:
Go to Projects in the left menu → click New Project. Enter the project name, link it to a customer (the funder), and save.
Reconciling is one of the most important things you do in QBO. It is also one of the most satisfying when you get it right.
What is reconciling?
Reconciling is the process of checking that every transaction in QBO matches what actually happened in your bank account. You go through your bank statement and tick off transactions in QBO one by one until the difference between QBO and the statement reaches zero. A clean reconciliation means the books are accurate — nothing is missing, duplicated, or entered incorrectly.
This is why keeping your bank feed up to date matters. The cleaner your day-to-day records, the quicker and easier the monthly reconciliation will be.
What You Will Need
Before you start, have the statement for the account you are reconciling. This could be a bank statement, a Stripe payout report, or a physical cash count. You will need the statement ending date and the ending balance.
How to Reconcile
Click the Gear icon, then under Tools, click Reconcile.
From the Account dropdown, choose the account you want to reconcile — for example, Current Account, Savings Account, or Cash on Hand.
Enter the Statement ending date and Ending balance from your statement. Check that the Beginning balance shown by QBO matches the opening balance on your statement. If it does not match, something has been changed since the last reconciliation and needs investigating before you continue.
Click Start reconciling. QBO shows all uncleared transactions for that account. Go through your statement line by line and tick off each matching transaction in QBO.
As you tick off transactions, the Difference in the top-right corner changes. Your goal is zero. Zero means your QBO records match your statement exactly.
If the difference is not zero:
Look for transactions on your statement that are not in QBO — these may need to be entered.
Look for transactions in QBO that are not on your statement — these may have been entered in error or may not have cleared yet.
Check for transactions with the wrong amount.
If you cannot find the issue, ask your treasurer or contact Cassley Office Solutions.
Once the difference is zero, click Finish now. QBO saves the reconciliation and you can view or print a report for your records.
Reconciling Cash on Hand
For a Cash on Hand account, you will not have a bank statement. Instead, use your petty cash sheet — a handwritten or typed record of cash going in and out.
Create a sales receipt in QBO and add all the amounts from the "in" column on your petty cash sheet.
Create an expense and enter any costs from the petty cash sheet. Each proof of purchase should be numbered and attached.
Attach the petty cash sheet itself to both the cash receipt and the expense. This keeps everything linked for your records.
Count the cash in the tin. That total is your ending balance. Enter it into QBO and reconcile as normal.
💡 Tip: Check your cash tin against your written record at least every two weeks — weekly is better. Small errors are much easier to find and fix quickly than when you leave it a month.
Journal entries are one of those things that can feel mysterious at first. Once you understand what they are for, they make a lot of sense.
What is a journal entry?
A journal entry is a manual adjustment in QBO. Unlike invoices or bank transactions, it does not involve money moving in or out of your bank account — it is an internal bookkeeping correction that makes sure costs and income land in the right place, in the right time period, and in the right fund.
Every journal entry has two sides: a debit and a credit. They must always balance. QBO will not let you save a journal unless both sides are equal.
Grant Journals
At year end, you need to check what has happened with each restricted fund. Run the P&L by Class report and look at the Net Income line for each restricted fund column.
Figure above zero — the fund has a surplus
Grant money that has not been spent does not belong to your organisation — it belongs to the funder. It needs to come off the P&L and sit on the balance sheet until you either spend it or return it. Journal the surplus from the relevant income account to the balance sheet. Use the grant name in the description.
Which balance sheet account to use? Different organisations — and different accountants — use different terms for this. You may see it called Deferred Income, or you may see it called Accruals. Both refer to the same idea: money that has been received but not yet earned. Check your own balance sheet to see which term your accountant uses, and use that account consistently. If you are not sure, ask your accountant.
Figure below zero — the fund has overspent
The project has cost more than the grant covered. That shortfall becomes a cost to your organisation. Journal it from the restricted fund class to your unrestricted funds so it sits correctly.
Small leftover from a finished project
If the project is complete and the small remaining amount does not need to be returned to the funder, it can be moved to unrestricted funds. Check your grant terms before doing this.
💡 When you have finished, every restricted fund column in the Net Income line should show zero. The money has not disappeared — it has either been moved to the balance sheet (surplus) or absorbed into unrestricted funds (overspend).
Line Management Fees and Office Rental
This is a situation that comes up more often than you might expect, and it is worth understanding how to handle it cleanly.
When a grant pays for a staff member's time or the use of office space, that cost needs to be recorded against the grant — but the organisation also needs to reflect that it has been compensated for that cost. There are two ways to do this in QBO, both using journal entries. The difference is which type of account you use. The most important rule is this: always use two accounts of the same type — either both expense accounts, or both income accounts.
Create a journal with two lines. Debit the relevant expense account under the restricted class — this posts the cost against the grant. Credit the corresponding unrestricted cost account — this reduces the unrestricted costs by the same amount. Add the grant name in the description on both lines.
The credit does not have to go against the same account as the debit — it goes against whichever unrestricted cost the recharge actually represents. For example:
Management time: Debit Management Fees (restricted) → Credit Salaries/Wages (unrestricted)
Office rental: Debit Office Rental (restricted) → Credit Rent or Utilities (unrestricted)
The net effect: the grant bears the cost, and unrestricted funds are relieved of the cost they would otherwise have absorbed. No income is created and nothing is inflated.
The alternative is to use income accounts on both sides of the journal. Debit the grant income account under the restricted class — with a clear description such as "internal room hire recharge" — and Credit the relevant income account under unrestricted, for example Room Hire Income.
Management time recharge: Debit Grant Income (restricted) → Credit Management Fees Income (unrestricted)
Room hire recharge: Debit Grant Income (restricted) → Credit Room Hire Income (unrestricted)
The net effect: the grant income is reduced by the recharge amount, and unrestricted picks up the corresponding income.
⚠️ Important — always use two accounts of the same type
Whether you use Option A or Option B, both sides of the journal must use the same type of account — either both expense accounts, or both income accounts. Never mix an expense account on one side with an income account on the other. QBO will get confused, your P&L will not read correctly, and your books will be wrong. Stick to one approach and be consistent.
💡 Which option you use is up to you and how your accountant prefers to work. Both are valid. The important thing is that you use the same type of account on both sides of the journal — consistently, every time — and that you always add a clear description so the purpose of the entry is obvious when someone looks at it later.
Accruals and Prepayments
These are year-end adjustments that make sure costs and income land in the correct financial year. They require a judgement call about amounts and timing, so the steps below explain the concept — but work through the actual entries with your accountant or bookkeeper.
Prepayments
A prepayment is when you pay for something in one financial year that partly or fully relates to the next year. Insurance is a common example — if the annual premium is paid in January, the portion covering the months after your year end belongs to the new year.
The adjustment moves that portion from the expense account on the P&L to a Prepaid Expenses account on the balance sheet, removing it from this year and holding it ready for next year. A reversing journal on the first day of the new year releases it automatically.
Accruals
An accrual is when a cost belongs to this financial year but the bill has not arrived yet. Accountant fees are a good example — the work was done this year, but the invoice might not come until after your year end.
The adjustment brings the expected cost into this year by journalling it from the Accruals account on the balance sheet into the relevant expense account on the P&L. When the actual bill arrives, part of it is already allocated to the previous year, so it does not all land in the wrong period.
Note: some accountants use Accrued Liabilities or simply Accruals for this account. Check your balance sheet to see what your accountant has set up.
⚠️ A note on accruals and prepayments
Getting these right requires knowing your year end date, understanding your grant terms, and making judgement calls about amounts. If you are not sure, do not guess — work through these with your accountant or bookkeeper. Getting them wrong can affect your restricted fund reporting and your accounts as a whole.
How to Enter a Journal in QBO
Click + New, then under the Other column, click Journal Entry.
Enter the date the journal relates to — usually your year end date, or the date of the adjustment.
Each journal needs at least two lines — one debit and one credit. For each line, select the Account, enter the amount in either the Debits or Credits column, assign the correct Class, and add a clear description. The description is important — future you will thank present you.
The total debits must equal the total credits. QBO shows a running total — if they do not match, you will not be able to save.
Click Save and close. If this is a reversing journal (for accruals and prepayments), tick the Reverse Journal option and set the reversal date to the first day of the new financial year.
Journals are powerful — and hard to undo cleanly
A wrongly entered journal can throw off your restricted fund reporting in ways that are tedious to unpick. If you are unsure, prepare the details and go through them with your accountant or with Cassley Office Solutions before posting.
VAT is one of the areas where it is most important to get things right from the start. This tab explains how VAT works in the context of a third sector organisation — including the parts that catch people out.
⚠️ Always check with your accountant
VAT rules for charities and community organisations can be complex. This guide gives you a solid understanding of the principles, but your specific situation may have nuances that need professional advice. When in doubt, ask.
The VAT Threshold
What is the VAT threshold?
You are only required to register for VAT if your taxable turnover exceeds the current threshold in any rolling 12-month period. Check the current threshold on the HMRC website — it changes from time to time.
Taxable turnover does not include all income. Grant income is often outside the scope of VAT altogether. What counts is your income from VATable supplies — things like hall hire, services to other organisations, trading income.
If your organisation makes VATable supplies above the threshold, you must register. But there can also be reasons to register voluntarily below the threshold:
✅ You can reclaim VAT on your purchases (where the VAT is recoverable — see below)
✅ It can make your organisation look more established to suppliers and funders
✅ If your suppliers are mostly VAT registered, reclaiming input VAT can reduce your costs
VAT registration also brings obligations and complications:
⚠️ You must charge VAT on your VATable supplies and submit regular VAT returns
⚠️ Administration increases — every transaction needs the correct VAT code
⚠️ For charitable activities, you often cannot reclaim the VAT you pay (see below)
⚠️ Partial exemption calculations can be complex and time-consuming
💡 For many small third sector organisations, VAT registration is not straightforward — the benefits depend heavily on your income mix. If you are approaching the threshold or considering voluntary registration, talk it through with your accountant first.
VAT Codes You Will See in QBO
VAT on Charitable Activities
This is the part that catches most organisations out.
If your organisation carries out charitable activities — running a project for the community, delivering services to beneficiaries, funding activities through grant income — the VAT you pay on the costs of those activities is usually not reclaimable.
This is called blocked input tax. The VAT is real, it is on the invoice, but HMRC does not allow you to reclaim it because the activity it relates to is not a business activity in the VAT sense.
In QBO, you can use the Blocked Input Tax code on these transactions. It is worth knowing that QBO does not formally recognise this as a distinct VAT treatment — it will not automatically exclude these transactions from your VAT return. What it does do is flag them clearly, making it much easier to identify which transactions need to be adjusted when you come to submit your return. You will still need to amend the return manually to exclude the blocked amounts.
Important: Do not use the standard 20% S code for charitable purpose costs if your organisation cannot reclaim that VAT. It will overstate your recoverable VAT and cause problems on your return. Always check with your accountant which costs this applies to in your specific situation.
💡 Example from experience: An organisation I worked with was using the standard VAT code on all their project costs — running costs for a community project funded by a grant. They were inadvertently claiming back VAT they were not entitled to. Fixing it retrospectively took considerably longer than getting it right from the start would have.
VAT for charitable organisations is complex
Blocked input tax, partial exemption, and VAT returns for mixed-income organisations are areas where you really need professional advice. Please speak to your accountant — not just the first few times, but whenever you are unsure. Getting it wrong is costly and hard to fix. Get in touch with Cassley Office Solutions if you need a referral.
Partial Exemption
What is partial exemption?
Many third sector organisations have a mix of income — some VATable (like hall hire), some exempt (like certain grant income or education services), and some outside scope (like most charitable activity). When this happens, you cannot simply reclaim all the VAT on your costs, because some of those costs relate to the exempt or non-business activities.
Instead, you have to work out what proportion of your input VAT is reclaimable. This calculation is called a partial exemption calculation, and it is done as part of your VAT return — usually annually as well as within each return period.
Most small charities and community groups with mixed income will be partially exempt without realising it. The practical effect is:
• You can only reclaim the portion of VAT that relates to your taxable business activities
• Costs that relate entirely to exempt or non-business activities — such as charitable projects — generate no reclaimable VAT at all
• Shared costs (like premises, admin, utilities) need to be apportioned
⚠️ This is not a DIY calculation
Partial exemption calculations can be complex and the rules vary depending on your income mix and the method HMRC agrees with you to use. Getting it wrong can mean overclaiming VAT (which HMRC will want back, with interest) or underclaiming (which costs your organisation money). This is one area where professional advice is genuinely worth the cost. Always work through your partial exemption position with your accountant.
Where to Apply VAT in QBO
| When you are doing this... | Where to check VAT |
|---|---|
| Creating an invoice | VAT column on each line item |
| Entering a bill | VAT column on each line item |
| Posting a bank transaction | VAT dropdown when you expand the transaction |
| Creating an expense | VAT column on each line item |
| Uploading a receipt | VAT field when reviewing the uploaded receipt |
| Creating a transfer | VAT does not apply |
| Creating a journal | Check with your accountant |
Inclusive vs Exclusive — Amounts Are
When entering bills or expenses, you will see a dropdown that says Amounts are. This controls how QBO handles VAT:
Exclusive of Tax — you enter the net amount (before VAT). QBO adds VAT on top. Use this when the invoice clearly shows the net and VAT separately.
Inclusive of Tax — you enter the gross amount (including VAT). QBO works backwards to calculate the VAT portion. Use this when a receipt only shows the total.
🔑 The Golden Rule
Every invoice line, bill line, and bank transaction you post must have the correct VAT code. If you are not sure — ask. It is much easier to get it right first time than to fix it later, especially once a VAT return has been submitted.
VAT questions?
VAT for third sector organisations has more layers than for a typical small business. If something does not look right, or you are not sure which code to use, get in touch with your accountant. Do not guess.
A few things that come up again and again. Worth reading even if everything else in the guide feels familiar.
📋 At the End of a Project
Go back through all the transactions for that project and check nothing has been missed or wrongly classed. Make sure all grant money has been spent as required and that there are no unexpected costs sitting in the wrong fund. It is much easier to fix things while the project is fresh than six months later.
⚠️ Do not Add when you should Match
If you have already entered an invoice or bill, always use Match when the bank transaction comes through. Adding it creates a duplicate and throws off your reports. This is one of the most common mistakes I see.
⚠️ Always check the VAT code
QBO sometimes guesses the wrong VAT rate based on previous transactions. A quick glance before you save can prevent errors that are tedious — and sometimes costly — to correct later. See the VAT tab for guidance on which codes to use.
⚠️ Always assign a class
Every transaction needs a class. If you are unsure, check a previous transaction from the same donor or supplier and copy what was used. If you genuinely cannot work it out, leave it blank rather than guessing — it will show as Not Specified in your reports and can be corrected later. Guessing wrong is harder to spot and fix.
⚠️ Do not skip the Payee field
Always enter who the payment was to or from. This trains QBO to suggest the right category next time and makes your transaction list much easier to read.
⚠️ Do not delete transactions — void them
Deleting a transaction removes the audit trail. Voiding keeps the record but zeros out the amount. Always void, never delete.
⚠️ Do not leave the bank feed for months
Weekly reviews take five minutes. Monthly catch-ups take hours, and you will have forgotten what half the transactions were for. One of my previous clients went three months without reviewing their feed — it took a full day to sort out.
⚠️ Do not forget to reconcile
At the end of each month, reconcile your bank accounts in QBO. It is the only way to be certain your records match reality.
📄 Missing a Receipt? Flag It Clearly
If you cannot find a receipt — or you are waiting for a colleague to send one — do not leave the transaction blank and hope you will remember. Write in the description field in CAPITALS: RECEIPT STILL NEEDED (or similar). This will show clearly in any report you run, makes it easy to search for later, and serves as a reminder every time you look at the transaction.
You can still reconcile an account while a receipt is missing — just make sure you do a monthly check for any transactions flagged this way and chase them up. Do not let them pile up.
Handy Keyboard Shortcuts
Ctrl + Alt + I — New Invoice
Ctrl + Alt + X — New Expense
Ctrl + Alt + W — New Bill
Need Help?
If you need help setting up QBO, troubleshooting something that is not working, or get stuck with classes, journals, or anything that does not look right — do not muddle through. It is always easier to ask than to unpick a mistake later. Get in touch with Cassley Office Solutions: paula@cassleyofficesolutions.co.uk or 07356 225006.