Error:You have either selected a tax liability account on a transaction where it's not allowed, or haven't specified a tax rate along with it. How do I allocate VAT paid?

Hi, info1082.

I can share some information regarding allocating paid VAT in QuickBooks Online.

The error you're getting means you can’t assign a VAT code when using Sales Tax or VAT Liabilities Payable Account. Default tax accounts are used to track VAT and shouldn't be used in creating transactions.

If you want to use the liability account, you can record a journal entry and match it to your bank statement afterward. However, using this method (journal entry) needs the assistance of an accounting professional for the accounts you need to use.  Also, your accountant can help and guide on which account to debit and credit.

Here's how to enter a journal entry:

1. Select + New.
2. Select Journal Entry.
3. Fill out the fields to create your journal entry.
4. Select Save and close.

You might find the following resources below interesting. It provides you steps on how to deactivate and reactivate vat code in QuickBooks Online as well as insights on how to track your VAT codes:

How do I set up sales GST/VAT rates and use them on forms? (International QBO)

Remove a VAT or GST rate

Let me know if you have any other questions, I'll be right here to help. Have a good one!