I'm using Xero, and having trouble figuring out how to correctly code VAT.
I have three types of bills I regularly pay:
- Those that come from VAT registered businesses (whether in the UK or EU)
- Those that come from suppliers who are in the UK and NOT registered for VAT
- Those that come from outside the EU
VAT registered businesses - easy, the VAT is on the invoice. Code as normal.
Non-VAT and outside the EU... how do I code those?
Xero gives several option for VAT coding out-the-box:
- Exempt
- No VAT
- Standard rate @ 20%
- Zero Rated
- Zero Rated EC Supply
I'm currently wiring them up as follows...
- VAT registered - as listed on invoice, often standard rate
- Non VAT rated - Exempt (so it appears as a Box 7 purchase, but with no VAT to reclaim)
- Outside the EU - Zero rated... so I'm basically paying VAT on imports, then claiming it back
Is this correct?
I've read so many different answers on this site, especially about non-VAT registered businesses and whether or not their supplies should be considered Exempt or Out of Scope (I'm not sure what the equivalent in Xero is for Out of Scope - probably 'No VAT').
Seems like it should be an obvious thing, but no-one I speak to seems to know!
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Replies (2)
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Would Xero know?
I don't use the software so can't comment but I think you need to contact the software supplier to see what they think you should do. The status of supplies received from non-registered businesses is an interesting one, as it is a taxable supply but made by a non-taxable person so that VAT does not need to be accounted for on it the supplier. It may be, of and in itself, an exempt supply (such as rent if no option to tax), or taxable as a zero or reduced rate supply, if it is none of those then it is a taxable supply - but one on which there is NO VAT. That answers the second point. Don't agonise over it.
If a supply is received from a UK registered business then it goes into the box at the appropriate rate but I notice that you are not given an option for a reduced rate supply (5%) - an oversight by Xero perhaps.
If a supply is received from a non-UK business then it should go into Zero rated EC supply to ensure if you are big enough that the appropriate entries are made on EC sales lists and intrastat documents. You should not aggregate and return it with UK supplies, if the VAT number was given to the supplier they should have zero rated it (although in most countries in the EU it is treated as an out-of-scope supply - out-of-scope is the equivalent of the zero rate which we and the Irish have but no-one else does it is not the equivalent of an exempt supply). If VAT has been charged on this invoice then recovery can only be made by an appropriate claim to the country to whom the VAT was paid, it cannot be netted off against UK VAT. I assume there is some means within Xero of accounting for VAT under the reverse charge mechanism where required, and to correctly record the tax point of goods acquired from elsewhere within the EU which is NOT the date of invoice.
Supplies received from outside the EU should logically be NO VAT as they are not within EU directives.
As you can see it is not as simple as you might think and that is why you need to go back to Xero.