Not on EC Sales list.Sale of Goods to EU business – Zero Rated EC Goods Income. Include on EC Sales list.Sale of Services to EU business – Zero Rated EC Services. Include on EC Sales list.Sale of Goods outside the EU – No VAT. Not on EC Sales List.Sale of Services to Non EU business – No VAT. With the help of our topical tips, blogs and key guides you can enjoy the benefit of being regularly informed of business and accounting updates which are likely to be relevant to you and your business.
GDPR and online accounting + Small Businesses
If the customer is not VAT registered, then the applicable UK rate of VAT is charged. Zero-Rated – when the supply of items is Zero-Rated, such as children’s clothing, basic foods, books and newspapers, this term is utilised. Use ‘Zero-Rated Expense’ if an expense was Zero-Rated if the supplier was not VAT-registered. No VAT – these transactions will not appear on your VAT returns since they are not subject to VAT. On transactions that aren’t subject to VAT, this code should be used.
Outside the Scope of VAT
It’s not always obvious what the difference between No VAT in Xero is versus zero-rated and exempt VAT. It’s probably not something you have ever thought too long and hard about because it all equates to the same thing – nothing is being charged to the customer and nothing to reclaim on purchases. When recording transactions we are aware that some items fall under the scope of VAT legislation and others don’t.
Our brochure explains who Barnes Roffe is, our resources, how we work with you, our services, our people, and what our clients say about us. Import/export of goods – there are other rates for import and export of goods. For most firms utilising Xero, other rates for import and export of goods do not come up very often.
Please be sure to double-check with your accountant, bookkeeper, or the tax office if you are unsure what VAT tax rate you should be applying to your supplies. Items that are zero rated have a VAT rate of 0% applied to them. This is different from exemption although it has the same effect on what is owed to or from HMRC.
Again this will include the sale on your EC Sales List within Xero, include the sale in box 6 but not in Box 8 (as the place of supply is with the customer). Sales to non VAT registered consumers are treated like a sale to a UK customer with 20% VAT added to the net amount as normal. However if you have a high value of these types of distance sales then you may need to register for VAT in the EU country and charge the relevant VAT. If your EU sales are over £250k per year then you also need to file an Intrastat Supplementary Declaration. Maintain thorough records of all transactions involving zero-rated VAT.
The government could change this rate from 0% to 1% which would boost revenue to the exchequer. Zero rated VAT and Exempt are different and must be recorded differently. A purchase invoice should state whether a purchase is exempt or zero rated or something else.
- These codes are used for purchases of goods from suppliers based in EC.
- 0% – for both Zero Rated and Exempt supply and expenses, this should be utilised.
- On the Transactions by tax rate tab when looking at your VAT return reports it details all transactions for your VAT period listed by the different tax rates.
- Getting your head around how VAT works in Xero, and using the right codes from the start, will certainly reduce any VAT headaches in the long run.
ways your small business can cope with rising inflation
- Goods that are typically zero-rated include basic foodstuffs, prescription medicines, books and educational materials, public transportation, and exports.
- You record them as Zero Rated irrespective of who the supplier is and irrespective of whether the supplier is VAT registered or not.
- While these mechanisms serve different purposes, they both aim to ensure that essential goods and services are more accessible and affordable.
- By doing so, businesses can ensure that they are applying the correct VAT treatment to their goods and services, preventing potential compliance issues and financial penalties.
- The first stage is to decide whether you are selling to consumers or businesses.
A taxable person is an individual, firm, company and so on who is, or is required to be, registered for VAT. A person who makes taxable supplies above certain value limits is required to be registered. Whilst many business transactions might have £0 VAT that is not the same as No VAT. Exempt items are different from zero-rated supplies which are different from outside the scope of VAT yet they all mean £0 VAT from a monetary point of view. In order to know when you should use No VAT in Xero you need to understand what is outside the scope of VAT.
For many of these services, the suppliers don’t register for VAT in the UK and so don’t charge VAT. Instead, you as the customer have to apply the reverse charge rules. Receipts or invoices received may have xero no vat or zero rated a note on them along the lines of “This supply has been made under the reverse charge scheme”. Understanding the differences between VAT exemption and zero-rated VAT is crucial for businesses.
When making an exempt supply (for example, selling an insurance policy), you should invoice with ‘Exempt Income’ and no VAT should be applied. Even if there was VAT on the expense, all expenses directly related to the provision of exempt goods/services must be recorded as ‘Exempt Expenses’ and no VAT must be claimed. 20% & 5% – the Standard and Reduced VAT rates in the UK are 20% and 5%. If you have been charged VAT on expenditure and it is not directly related to an Exempt supply, use 20%/5% (VAT on Expenses). 0.0 % Z – used when the supply of items is zero-rated, such as children’s clothing, basic meals, books, and newspapers.
Can you reclaim VAT on zero-rated supplies?
It’s important to note that the specific items or services exempt from VAT can vary from one country to another, as tax laws and regulations differ. Entering your VAT-able and non-VAT-able expenses against the right codes in Xero will make completing your quarterly return a whole lot easier. And, ultimately, keeping on top of your VAT, having the right receipts and claiming back the tax you’re due is a great way to improve the cash situation in your business. There are three main types of expenses where you don’t pay VAT – and you’ll need to understand these (and code your expenses accordingly) to complete your return correctly. In the course of running your business, you’ll buy a whole variety of different goods and services from your suppliers.
The customer’s VAT number and your VAT number should be shown on your sales invoice to be classed as a business sale. At monthly or quarterly intervals an EC Sales List should be filed to declare any sales to EU businesses. In B2B transactions, it is the customer who must account for any VAT due via the reverse charge mechanism.
IRIS Kashflow provides a very simple VAT accounting system where only the rate is provided, and it is set up with a huge variety of rates that are unlikely to apply to you. These differences substantially impact businesses and consumers, particularly in the context of reclaiming input VAT. You may find you commonly use this code for software advertising services such as Google ads and Facebook ads which are based in Dublin. There won’t be any VAT to reclaim and purchases using this code won’t appear at all on your VAT return. When posting journals in Xero you are more than likely going to be creating entries that you will not want to record on a VAT return such as accruals, prepayments, and wages.
The original transactions posted into your Xero records such as invoices and bills should have the correct VAT treatment applied to them. You would need to make sure you have a way of recording the different types of sales so you could prove this calculation and monitor it as the VAT registration is based on a rolling 12-month basis. Supplies which are made in the UK or the Isle of Man and which are not exempt are called taxable supplies.
Getting your head around Xero VAT codes for expenses
So a business that isn’t VAT registered is counted as a consumer. These codes are used when you must account for VAT on services that you buy from businesses who are based outside the UK. These codes are used for purchases of goods from suppliers based in EC. Exempt 0% – this should only be used if your company products exempt supply. Even if there is VAT on the expense, you should choose this option if you make an exempt supply (e.g. insurance) or incur a cost directly related to an exempt supply. Be aware of any changes or updates to VAT rules in the country or countries you’re operating in, as they can vary over time.
To find your No VAT transactions for purchases in Xero, go into the “reports’ section and select the “Payable Invoice Detail”. You can then select the “No VAT” filter which can be found under the “VAT Rate Name” drop down. The account transactions report in Xero is fantastic as you can slice and dice your data how you need it. In the report above I have chosen a date range and grouped my transactions by the VAT rate name which is No VAT. I have set the filter to only show transactions posted using the No VAT tax rate and am looking at all transaction types. There are a number of ways you can find No VAT transactions in Xero.