MTD for VAT: Accounting software codes
To help you prepare for the extension of MTD to all VAT registered businesses, you need to understand when to use the different VAT codes in cloud or desk-based accounting software.
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"HMRC and cloud software suppliers promote how MTD will make everything simpler and more compliant. But that glosses over the fact that there is still a certain level of required knowledge in order to correctly code and account for sales and purchases in the accounting system."
I love the use of 'glosses over' ... it was a sad day Jason when you decided not to enter the Diplomatic Corp!
Thank you for this Jason. Isn't VAT on Imports in Xero for use where VAT is paid separately to the freight company when the goods have been imported. PVA is done through an adjustment to the VAT return...
The codes changed on the 1st April 2021. Sage never got round to telling anyone but I don't know about other software companies. There must have been thousands of companies who sell and buy to and from the EU who put in incorrect returns.
As we only use spreadsheets and bridging software . . . . . surely we don't need to worry about this gumph? Do we?
Yes, SO much easier with spreadsheets.
No need for confusing vat codes, just head up the spreadsheet columns with sensible headings in plain english that everyone can understand and keep the exempt column totals out of your VAT return summary. E.g. who wouldn't understand what to post into a column entitled 'Insurance, rent & rates'
It's also relatively quick and easy to spot where a client has posted something into the wrong column on a spreadsheet, but can take hours to trawl through the endless report screens in an accounting software package to esure everything is in the correct place.
Our clients love the simplicity of the spreadsheets we tailor to their individual business needs and very little ever goes wrong. So for us its a no-brainer. You can keep your accounting packages and their perpetual monthly subscription fees !
Hopefully in the future when MTD ITSA is approaching certainty people will share their spreadsheets. I'm certain there will be many great examples. I'm with you - spreadsheets are the bull's pizzle. I don't EVER want to move away from them. The fact that they are easily understood and the fact that they are easily changed - that's what makes them more suitable. Who wants to go around the houses in a software package trying to change an entry from one thing to another - whilst not being able to see behind the Wizard of Oz's curtain to see the gubbins of bookkeeping software. The way I see it . . . . . . the only likely possible that any of these packages could bring would be the bank feeds. Simple bank feeds (and only that) at a reasonable price is about as far as, I think, I'll be prepared to go.
As a user of Sage Line 50 cloud we were instructed to use T21 for reverse charge transactions and it seems to work. Where did you get T22 and T24 ?
Thank you for this Jason. Is anywhere better description what should be included in box 6? I'm trying to find if eg sales of goods located in the Germany to other UE customer should be included? I assume not in the same way as supplies which are outside the scope of UK VAT as described in Place of supply of services (VAT Notice 741A)
I must admit we have given up worrying about anything other than box 5 as software makes it much harder and clients tend to use it all very badly and post all sorts of random VAT codes.. HMRC no longer seem to do the reconciliations from accounts to the reported turnover and they have never had a hope in hell of checking box 6.
So long as box 5 is right the worst you are going to get is a ticking off.
Exotic topics such as reverse charge and all the rest of it are about 5 miles over most of our clients heads.
Hi Thanks for this. On your point on supplies of services to non-UK business customers (ie outside and inside Europe) what code should be used in Xero to ensure the transaction appears in box 7?
Thanks a lot
Ditto. And some of mine are farmers so box 6 has been £nil for many years, yet HMRC never question it and continue to pay out the refunds.
This is a very useful chart; thank you, Jason. I would just add that, in QBO, there are different reverse charge codes for sales (0.0% RC) and purchases (20.0% RC SG). The software very sensibly only offers the relevant RC code for a sales or purchase item, so you cannot use the wrong one.
To make life much easier for clients on QBO, the accountant can go to the "Manage rates" screen (from Taxes - Edit VAT - Edit rates) and un-tick all of the codes that that client does not need. These will not then be offered in the VAT drop-down options when creating a transaction.
Is what you say under PVA correct? Under PVA there won't be an invoice for VAT from the Agent.
Is what you say under PVA correct? Under PVA there won't be an invoice for VAT from the Agent.
Jason - time to update the list for the new 12½% Halfway House Rate (does it have a proper name?)