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Good Morning Everyone,
This is my first post on the forum so hope it works.
I am sure this question has been asked on a number of occasions but I am struggling to find the right answer on the forum.
I am currently using The ICB accounts software (Iris Exchequer) and I have to enter a number of purchase invoices which are not VAT registered.
I was putting the VAT in as Zero rated but recently I was advised that it should be VAT exempt. Now I am completly baffled which is the correct answer.
I would appreciate it if someone could please confirm which is the correct code to put it into and the fact that I have been entering the items as Zero rated, would this cause any concern with the HMRC?
Many Thanks if you are able to help me.
Kind Regards
Wendy
Harrisons Bookkeeping Services
Edited at 09 Jan 2012 02:14 PM GMT
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- Member PM.Dip
- Practice Licence
- 43 posts
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Hi Wendy,
If the invoices are purchase invoices with no VAT you are correct to be inputting them as zero rated invoices. This way they will still show as purchases on the VAT return summary. You should save the VAT exempt option for items that would fall outside the scope of sales and purchase -i.e payroll etc.
Hope that helps.
Gina
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Hi Gina,
Thanks very much. I am really pleased I have done it correct. I have spent most of the afternoon on the internet trying to establish if it was right or wrong. It seems to confuse a lot of people.
I really appreciate your help.
Kind Regards
Wendy
Harrisons Bookkeeping Services
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- Member PM.Dip
- Practice Licence
- 51 posts
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I was always told that invoices from people who are not VAT registered should be entered under T9 (on Sage) as outside the scope of VAT. This is the same as for wages, drawings etc.
Zero rated and exempt are kept for items that fall into these catagories. Eg books are zero rated and insurances are exempt.
This is the way I have done it for the last 6years and never been told any different by any of the accountants I work with or HMRC.
Please feel free to correct me if I am wrong.
Lol
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- Member PM.Dip
- Practice Licence
- 43 posts
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Dear Lol,
Wendy is posting onto Exchequer and not using Sage. However as I understand Sage, using the T9 code means that the figues will not be picked up in the VAT return. If these are purchase invoices with no VAT they should still be recorded in the VAT return's totals hence the need for T0 (or zero rated).
Can anyone else step in here to confirm?
Gina
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I agree with Gina. Thats the way I have been posting to sage for the last 6 years, during which time I have been involved in 2 VAT visits at clients and the inspectors didn`t have any problems with the postings.
Steve
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Ginasaid:
“Dear Lol,
Wendy is posting onto Exchequer and not using Sage. However as I understand Sage, using the T9 code means that the figues will not be picked up in the VAT return. If these are purchase invoices with no VAT they should still be recorded in the VAT return's totals hence the need for T0 (or zero rated).
Can anyone else step in here to confirm?
Gina ”
Hi,
I have used Sage 50 and T9 is for Exempted item such as Stamp. As Gina mentioned above these items which are out of the VAT scope in terms of Purchase and Sales. I confirm what Gina stated.
Purchase invoice with zero VAT are posted onto Sage using T0 not T9. Wages are out of the scope therefore T9 apply.Drawing VAT is applicable if the company is VAT registered.
Hope this help,
Nathalie
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- Fellow PM.Dip
- Practice Licence
- 259 posts
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I agree with lol, I have always posted non-VAT registered suppliers in the T9 code because they are not specifically classed as zero-rated or exempt so I believe they are outside the scope of VAT.
All the HMRC is interested in is how much VAT they are due to be paid really...
Nathalie, I think stamps are specifically exempt so it would be the T2 code.
Edited at 09 Jan 2012 09:27 PM GMT
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Thank you everyone for your input,
This appears to be going the same way as most of the discussions I have found on the internet. There does not seem to be a clearly defined answer. I think this is why I keep getting confused.
My thoughts were that the purchases should appear on the VAT return which is why I chose the Zero rated code. I just worry that I am doing it wromg .
I suppose so long as HMRC receive the money they are owed, then it is not to much of an issue. Having read other forum sites and discussions people have had with HMRC I don't think there is a right or wrong answer but happy for anyone to correct me on this.
Perhaps the ICB could clarify this for us all.
Kind Regards
Wendy
Harrisons Bookkeeping Services
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Wendysaid:
“Thank you everyone for your input,
This appears to be going the same way as most of the discussions I have found on the internet. There does not seem to be a clearly defined answer. I think this is why I keep getting confused.
My thoughts were that the purchases should appear on the VAT return which is why I chose the Zero rated code. I just worry that I am doing it wromg .
I suppose so long as HMRC receive the money they are owed, then it is not to much of an issue. Having read other forum sites and discussions people have had with HMRC I don't think there is a right or wrong answer but happy for anyone to correct me on this.
Perhaps the ICB could clarify this for us all.
Kind Regards
Wendy
Harrisons Bookkeeping Services ”
Hi Wendy,
You are right purchase should always appear on the vat return and T0 is the correct code to use.
Anyone who is an expert in Sage please correct us if we are wrong!
I suggest you go with your thoughts!
Kind Regards,
Nathalie
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Lady Msaid:
“I agree with lol, I have always posted non-VAT registered suppliers in the T9 code because they are not specifically classed as zero-rated or exempt so I believe they are outside the scope of VAT.
All the HMRC is interested in is how much VAT they are due to be paid really...
Nathalie, I think stamps are specifically exempt so it would be the T2 code.
Edited at 09 Jan 2012 09:27 PM GMT”
Lady M,
Sorry Lady M Zero rated is not synonymous to Exempt...Zero rated does not mean exempted of VAT... Out of VAT scope does not mean zero rated. .
T2 is exempted for postage Yes you are right
T9 is also for exemption but for item like wages which do not appear on vat return.
I apologise if i confused anyone.
Kind Regards,
Nathalie.
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This always generates a lengthy debate.
This link helps to clarify (somewhat!)
http://customs.hmrc.gov.uk/channelsPortalWebApp/channelsPortalWebApp.portal?_nfpb=true&_pageLabel=pageVAT_ShowContent&id=HMCE_CL_000070&propertyType=document#P138_13882
If you purchase from a non vat registered company you would obviously receive a non vat invoice and this would be processed using the zero vat code (Sage T0) and not the exempt code (Sage T2), unless the item is classified as exempt.
So the main factor for deciding the vat code, in this instance, is the item invoiced and not the VAT status of the company that issued the invoice.
The "outside the scope of VAT" code (Sage T9) is only used for such items as Wages, PAYE, Insurance claims, etc and is excluded from the VAT return.
Hope this helps and I haven't muddied the water further.
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DavieRsaid:
“This always generates a lengthy debate.
This link helps to clarify (somewhat!)
http://customs.hmrc.gov.uk/channelsPortalWebApp/channelsPortalWebApp.portal?_nfpb=true&_pageLabel=pageVAT_ShowContent&id=HMCE_CL_000070&propertyType=document#P138_13882
If you purchase from a non vat registered company you would obviously receive a non vat invoice and this would be processed using the zero vat code (Sage T0) and not the exempt code (Sage T2), unless the item is classified as exempt.
So the main factor for deciding the vat code, in this instance, is the item invoiced and not the VAT status of the company that issued the invoice.
The "outside the scope of VAT" code (Sage T9) is only used for such items as Wages, PAYE, Insurance claims, etc and is excluded from the VAT return.
Hope this helps and I haven't muddied the water further.
”
Hi Dave,
100% agree on this above thanks
Kind Regards,
Nathaliexxx
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I wrote a definitive article on this topic recently. Here's the link:
http://www.accountz.com/baz/bazforum/viewtopic.php?f=8&t=1741
Quentin
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Definitely should be T0
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> Hi All
I have always taken a different view on this I would only code to T0 those supplies that are taxable at zero as per HMRC zero rated list.
If a a supplier supplied me goods where standard rate vat would normally apply but they are not VAT registered I would tend to treat this as a T9 transaction on the basis that the supplier in question is not VAT registered and is therefore outside the scope for VAT.
Kind regards
Stuart
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Thanks everyone,
However I am still confused. Having read and re-read all the views and links I still think that I am corrent in using zero rated. However I then read the comments of the people more experienced than I am and change my mind.
I just wish there was a straight forward answer to all this, I only want to get it right, I find it really frustrating, you read one article and you think you have it right in your own mind, then you read another and the doubt creeps back in.
I would call the HMRC direct but again having looked at the comments on other forums when people have asked this question they seem to get conflicting information also.
I think for now I will continue as I have been doing, rather than change course part way through.
Perhaps I should book myself on another workshop with the HMRC and ask the question there.
Kind Regards
Wendy
Harrisons Bookkeeping Services
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- Member PM.Dip
- Practice Licence
- 43 posts
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Hi Wendy,
No wonder you spent ages trying to get a sensible answer online - looks like everyone has conflicting views.
Glad you mentioned the VAT workshop....I'm attending the workshop in Southampton this Thursday. I'll see if the trainer can give me a definitive answer!
Gina
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Thanks Gina,
It will be interesting to see what they say. Please keep us all informed.
Kind Regards
Wendy
Harrisons Bookkeeping Services
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From my point of view, if you write exempt instead of 0 then it is better idea or may be you can write “– “symbol I think.
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Surely the point is what is the nature of the transaction and whether if the person was registered would it be liable to VAT. If it were it in my opinion it should be T0. If the transaction would not be taxable it should be T9.
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Hi Adrian,
My client is a courier, the nature of the purchases are payment to the drivers who are self employed. The drivers who are VAT registered provide VAT invoices, however the non VAT registered drivers obviously cannot provide VAT invoices and are providing a service to my client which I therefore have been putting them in as purchases.
I hope I am doing this correctly but this is the way I thought it would be best.
Does this make a difference.
Kind Regards
Wendy
Harrisons Bookkeeping Services
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I agree with Stuart and Quentin about this, until recenetly, I allways posted invoices the same way as most other people on this thread and followed the vat liability of the goods or service supplied. That was the way it was explained in my training material, plus I've had dozens of vat inspections and never been pulled up by HMRC for being wrong.
Until I recently read the section I've copied HMRC's website and the point looks pretty clear that if a business isn't vat registered then it's supplies are outside the scope.
I'd really appreciate a definitive answer from the ICB on this.
From HMRC': http://www.hmrc.gov.uk/vat/forms-rates/rates/rates.htm#5
Goods and services outside the scope of VAT
Some goods and services aren't covered by the UK VAT system at all - they're outside the scope of VAT.
You don't charge VAT on goods or services that are outside the scope of VAT. If you buy anything that's outside the scope of UK VAT, you won't be charged UK VAT so you can't claim it back.
Goods and services that are outside the scope of UK VAT includes anything you:
- sell (or otherwise supply) when you're not registered for VAT - and you don't need to be registered
- buy or sell outside the European Union (EU)
- sell (or otherwise supply) but not as part of your business - for example, if you occasionally receive income from sources such as leisure activities or hobbies
- buy and sell for your own personal use, such as a hobby
Other goods and services outside the scope of VAT include:
- donations to charity freely given by a business where the giver does not receive anything in return
- statutory fees and services, eg MOT testing, congestion charge
- tolls for bridges, tunnels and roads operated by public authorities
- low cost welfare services provided by charities
Edited at 10 Jan 2012 06:12 PM GMT
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Hi Tony,
Well that does seem to clarify things a little. However I use Iris Exchequer software and I don't have an outside the scope code set up as standard.
The options I have are
Standard 20%
Exempt 0%
Zero Rate 0%
Rate 1 17.5%
Old Rate 15%
EC Aqustn 0%
EC Disptch 0%
And several misc rate codes which I presume is to amend as you wish.
I would not be confident in setting up an out of scope code as I would not be sure if it would be correctly linked to the VAT return.
So now I am even more confused. Oh such is life. Why can't anything be simple.
I would really like to get this correct but as much as I try I really don't seem to be able to resolve it.
If the ICB could clarify this for us perhaps we will all be a little wiser.
Kind Regards
Wendy
Harrisons Bookkeeping Services
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Hi Wendy,
I don't know IRIS exchequer but I'd use whatever code isn't included on the vat return, I guess it would be exempt.
To answer your other question - nothing is simple because we're all taking about Vat ;-)
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Maybe Quickbooks has a better solution to this . . . N = Not Registered, Z = Zero Rated and S = Standard Rated. Doesn't really help people who use Sage or other software, but I just thought I'd throw my two-pennethworth in.
I've just qualified as a full member so please be gentle with me.
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- Member PM.Dip
- Practice Licence
- 51 posts
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After reading all this I was concerned that I was doing things wrong so I called HMRC today. I was told - and we all know how HMRC vary things depending on who you talk to - that "if someone is not vat registered they are outside the scope of vat". On Sage that is T9, which is what I was taught and how I have done things since I qualified - and will continue to do so.
I think this is one area that we will never have a definate answer on as people interperate things differently - and HMRC give different answers to different people. 
Lol
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I think it is agreed that if someone (or a company) is not registered for VAT then they are clearly outwith the scope of VAT, from their perspective, and therefore process their sales invoices using relevant VAT code (Sage T9). This is obvious and clearly explained by HMRC.
Unfortunately, the grey area arises when a VAT registered company receives an invoice from an un-registered company.
My understanding, from the perspective of the registered company, is that if the purchase is of a normally standard rated item, then it would be processed using a zero VAT code (the item being neither exempt nor outwith the scope of VAT). This would then be included in box 7 of the VAT return.
I may be incorrect, but I vaguely recall reading (somewhere) that boxes 6-9 are also used for UK National Statistical Information and have to include the sale and purchase of all goods and services that would be classified as either standard, zero or exempt, irrespective of the VAT status of the supplier.
Can anyone at ICB enlighten us.....before we implode!!
Edited at 11 Jan 2012 09:24 AM GMT
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Dear All
It has taken a few phone calls but I finally have a consistent approach from HMRC Vat Helpline.
If you are VAt registered and have suppliers made to you by a non vat registered company then they should go down as T1 with no vat to reclaim. (although HMRC did say that are not interested to be totally honest wether T0 or T1 is used so long as there is not VAT reclaimed and the net supply figure goes into box 7).
However from my discussions with them the complete prefernce would be that
T0 is only used where zero rated goods and services have been supplied.
T2 is only used where expemt goods and services have been supplied.
T9 should only be used for goods and services outside the cope of VAT (Wages etc)
T1 should be used for all standard rated supplies if the supplier is not registered themselves then enter zero in the vat box.
This would tie up with how quickbooks works as if you enter using the non-registered VAT code then no VAT is claimed but the net supply goes on the return for box 7.
This does seem to be the most sensible approach in my humble opinion however from HMRC's perpective their main interest is that the Box 4 and Box 7 figures are correct so they are not going to jump up and down if T0 has been used instead of T1.
I hope this is of some help
Kind regards
Stuart Wildman
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At last!!
Thanks Stuart, that has settled the debate and it makes perfect sense, although I never thought of allocating to T1 with no vat amount...perfecto!
Cheers
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- Fellow PM.Dip
- Practice Licence
- 259 posts
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Aaah finally a definitive answer! Thanks Stuart for all your efforts!
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Thank You Stuart,
I have also been making some phone calls this afternoon. I have spoken with a VAT expert at the ICB and he has told me more or less the same as you have been told by HMRC.
He also advised me that if you are working on a VAT registered client, and you get purchase invoices from a Non VAT registered supplier it would be a good idea to use the standard VAT code and put the VAT in as 0.00, this will then appear on the VAT return as purchases but you will not be claiming the VAT back.
I think it is ok that I have been using the Zero rated code as it does appear on the VAT return, however if the system allows it may be better to use the Standard VAT code but take out the VAT.
I am now a lot happier with the answers as we appear to have come to the same result through two different experts.
I have also found out how to change my VAT codes in Iris Exchequer and how to include them or not on the VAT return. So I think I may customise my software to make it easier for my clients. So if anyone else uses Exchequer please feel free to contact me if you would like some advise on this.
Thank you to everyone who has given their input on this subject, I finally feel that I have got the answers I was searching for, and the links which everyone has sent have proved very interesting and informative.
I do hope everyone else has got something out of this discussion, and appreciate everyone's time, this has been really good especially seeing it is my 1st for the Forum.
Kind Regards
Wendy
Harrisons Bookkeeping Services
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So glad this discussion has been settled...I have now recalled altering the VAT amount on standard rate in the past using a different accounting package.
Thanks Stuart and Wendy for making calls to HMRC...Both of you must have been persistent to get a consistent answer!
Kind Regards,
Nathaliexxx
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Hi Stuart & Wendy
No disrespect but I still don't trust the HMRC helpline, I know various people who have spoken to HMRC and got different answers from different people.
It's insane really, because HMRC's own website directly contradicts what the staff told you today. I'd feel a whole lot more comfortable if the ICB would deal with this question once and for all and if necessary HMRC amend their website
Edited at 11 Jan 2012 08:50 PM GMT
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Hi Tony,
I completely understand your frustration as I felt the same way as you do. However I did not call HMRC.
I called the ICB and I got the same answer as Stuart, That is the only reason I have decided that we have probably got the correct answer.
Kind Regards
Wendy
Harrisons Bookkeeping Services
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Tonysaid:
“Hi Stuart & Wendy
No disrespect but I still don't trust the HMRC helpline, I know various people who have spoken to HMRC and got different answers from different people.
It's insane really, because HMRC's own website directly contradicts what the staff told you today. I'd feel a whole lot more comfortable if the ICB would deal with this question once and for all and if necessary HMRC amend their website
Edited at 11 Jan 2012 08:50 PM GMT”
Hi Tony,
I must be missing something here, but where is the contradiction to what Stuart was advised, on the HMRC website .
I've copied the following from the HMRC website:
Goods and services outside the scope of VAT
Some goods and services aren't covered by the UK VAT system at all - they're outside the scope of VAT.
You don't charge VAT on goods or services that are outside the scope of VAT. If you buy anything that's outside the scope of UK VAT, you won't be charged UK VAT so you can't claim it back.
Goods and services that are outside the scope of UK VAT includes anything you:
- sell (or otherwise supply) when you're not registered for VAT - and you don't need to be registered
- buy or sell outside the European Union (EU)
- sell (or otherwise supply) but not as part of your business - for example, if you occasionally receive income from sources such as leisure activities or hobbies
- buy and sell for your own personal use, such as a hobby
Other goods and services outside the scope of VAT include:
- donations to charity freely given by a business where the giver does not receive anything in return
- statutory fees and services, eg MOT testing, congestion charge
- tolls for bridges, tunnels and roads operated by public authorities
- low cost welfare services provided by charities
Goods or services you supply within the EU may be inside or outside the scope of UK VAT, depending on the particular transaction.
The above is not definitive, but it is certainly not contradictory to the advice given.
Can you please elaborate Tony?
Cheers
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Hi Dave
It's this bit, we both quoted the same text
"Goods and services that are outside the scope of UK VAT includes anything you -
sell (or otherwise supply) when you're not registered for VAT - and you don't need to be registered"
If the sale is outside the scope then so must be the purchase. (edit: or at least I cant find anything that says it isn't)
Stuart was advised to place this under T1 with zero vat. When T9 is the code for outside the scope, same as wages.
Edited at 11 Jan 2012 10:11 PM GMT
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Tonysaid:
“Hi Dave
It's this bit, we both quoted the same text
"Goods and services that are outside the scope of UK VAT includes anything you -
sell (or otherwise supply) when you're not registered for VAT - and you don't need to be registered"
If the sale is outside the scope then so must be the purchase. (edit: or at least I cant find anything that says it isn't)
Stuart was advised to place this under T1 with zero vat. When T9 is the code for outside the scope, same as wages.
Edited at 11 Jan 2012 10:11 PM GMT”
Hi Tony,
"Goods and services that are outside the scope of UK VAT includes anything you -
sell (or otherwise supply) when you're not registered for VAT - and you don't need to be registered"
This only applies to the supplier / seller and is only relevant in his accounts, when he is not registered for VAT. Everything he buys and sells will be outside the scope of VAT, from his bookkeeping perspective, as he does not deal with VAT.
If I'm purchasing from this supplier, and I'm VAT registered, I have to treat it differently i.e. if the item purchased is normally of a standard VAT rate, then I process as such (Sage T1) but record the VAT amount as 0.00 as it is not a VAT invoice (now clear thanks to Stuart and Wendy). This ensures that the purchase is (correctly) included in Box 7 of the VAT return, irrespective of the VAT status of the supplier.
If the sale is outside the scope then so must be the purchase. (edit: or at least I cant find anything that says it
isn't)
The item purchased is not "outside the scope of VAT" just because the supplier is not VAT registered.
His sale and my purchase are two completely different things processed by two completely separate entities - one Vat registered and the other not.
Both Stuart and Wendy were given the same advice from different sources and it makes sense once analysed....easy to say now!! I hope this helps to clarify Tony and we can all finally agree on this matter 
Regards
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Hi Dave,
I totally agree, your summing up is brilliant. Now it all makes sense when it is put like this.
Perhaps you should work for HMRC then things may be a little clearer for us all.
Thanks
Wendy
Harrisons Bookkeeping Services
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The important thing is to enter transactions so that the VAT return is completed correctly. Items purchased from a non VAT registered business do need to be included in the total purchases box. Therefore whatever software package you use, they have to be entered so that that happens. If you understand what the codes actually mean -which boxes they put transactions in on your VAT return - you can ensure you choose the correct option.
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ditto on Davy's reply - Thanks for digging Stuart!
Was staying out of this one but had always understood that the HMRC wanted to see your purchases figures in full so the answer that Stuart was given by HMRC was how I have been doing this for a fair old number of years when in employment.
Occasionally the HMRC will give the Client (or you) a call just to double check why the vat reclaimed doesnt match the Supply figure in box 7 when divided by whatever the VAT percentage is - but as long as you are clear in your head and explain it to your client well enough, then the HMRC are happy too. It does seem to be just a spot check and to be honest they haven't called since online filing started.
So .... the answers would be (not exhaustive)
a) reclaiming vat on bad debt from a previous vat rate
b) Purchases from a non-registered supplier
c) Credited Invoices from a Supplier due to returns etc from previous vat rates
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Hi
I am a small bookkeeper using Sage for a few companies and this is the way I think.
T0 is for non vat transactions - i even use this for suppliers that are non vat registered as i think the VAT return will use this to still show the value of purchases made even if there is no VAT element.
T1 I have used for VAT at the standard rate (this might be 17.5% or 20%).
T2 - agreed this could be used for exempt transactions such as postage stamps - the companies i work for don't have many exempt things - though the more you dig the more you find.
T5 Have used this for 5% VAT
T9 - usually i use this only for transactions such as Bank Payment of PAYE/NI, or payment of wages from cash/bank to employees each week.
I agree whoever you speak to whether other bookkeeper, accountants or HMRC will tell you different variations.
Some have said that use T0 for zero rated and use T1 and zero out the amount for a non registered company. It's a difficult one because i always thought that T1 would be exactly the T1 purchases at the current VAT rate. In the past i've had some companies that split invoices between T1 and T0 but then one company said use T1 and just amend the VAT to whatever the invoice says. Can be confusing if you have multiple items with VAT and non VAT etc.
I apply the same pricipal on sage to each company that I do - therefore i know its me that has to answer the queries.
I only work for companies less turnover than £500k so I feel that even if this is not correct that I will be happy to justify it.
Thanks Russell
Edited at 13 Sep 2012 08:45 AM GMT
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