My colleague has raised an invoice to on of our customers and charged VAT in error. The customer has now paid the invoice with the VAT. How do I rectify the error ?

Hi Helen, I take it you also want to adjust the Tax in your VAT return, if so and you just want to record the refund and adjust the return.  What you could do is a 100 percent VAT transaction to record the refund as what you are refunding is just the VAT and you will need that to then create an exception on your VAT return to adjust the boxes where you have VAT but should not be. We have outlined the steps below to do that.  If you need to apply a credit note for the customer record, then we can provide an alternate way to record the credit note and expense of the refund.
> Expense
> ensure that you enter the bank account that the amount was debited from in the Payment account field and the date the amount was debited in the Payment date field
> on line one in the category column select the purchases account
> In the Amounts are field enter Exclusive of Tax > in the amount field enter 0.01
> in the VAT column enter 20%S (20%)
> on line two enter the same purchases account as line one in the category column
> in the amount column enter -0.01
> in the VAT column enter Exempt
> enter the amount of VAT you would reclaim in the VAT field between the Subtotal and Total.