VAT Code T0 and T9 - The Book-keepers Forum (UK)

Roman · Member

VAT Code T0 and T9

Julie Dawn · Senior Member

I found the following on the net but wherever I have worked people use different codes. For people not vat registered I have always used T1 still but put zero in vat box, but some websites say T9 should be used as they are outside scope of VAT??? I also get stuck with what to do with pensions, etc. I normally use T1 but maybe it should be T2. Hopefully I havent confused you more, maybe other people have different views????

T0 Zero rated transactions Sales outside of EU, Food, Sewage disposal/water, Books pamphlets and brochures, Newspapers, Maps etc..
T1 Standard Rate 15% all UK sales
T2 Exempt transactions - 0% Post office postal costs, Insurance, Bank charges, Professional memberships, finance charges
T5 Lower rate e.g. 5% energy tax
T9 Transactions NOT involving any VAT - Bank Transfers, Salaries, PAYE/etc, Insurance claims, Loans, Dividends, Stock Exchange Dealings (though this may have changed), MOTs vehicle licence duty, Local authority rates.

Dustin57 · Senior Member

If your client is not VAT registered you should use T9 for all transactions. If your client is VAT registered then you should only use T0 for zero-rated items e.g. train fares. T1 should only be used for standard rated items. T9 is used where the item is outside the scope of VAT e.g. salaries, tax payments etc. Pension payments are outside the scope of VAT and therefore you should use a T9 tax code.

Although I have seen other book keepers using a combination of codes, you should try and use the correct codes. Although the VAT liability won't be affected, the net sales and net purchases will be affected. If these are too high or too low in comparison to the amount of VAT being declared or reclaimed this can lead to a VAT investigation from HMRC (not nice! disbelief

).

Julie Dawn · Senior Member

Thanks for clarifying pension issue.

So just to make this clear to myself....if my client is not VAT registered then everything is T9.

If my client is VAT registered but receives an invoice from a supplier who is not VAT registered then I should use T1 and zero out VAT as the purchase should still need to appear on the VAT return because T9 doesnt report on VAT return.

Roman · Member

Thank you so much

Cheers

Roman

Nicola27 · Veteran Member

Is that right that an invoice from say a plumber who is not Vat registered should go as T1 WITH 0 VAT?

I have been T9ing everything :( this is going to be fun.....

gbm · Guru

Correct, the supply - if the plumber was VAT registered - would be T1.

Have fun :)

Wella · Expert

This caused me a lot of confusion.

After describing this very scenario to the HMRC VAT help line I was told that because the supply was made by a person that fell outside the scope of VAT that this type of supply also fell outside the scope of VAT (therefore T9), After a very interesting debate on this forum, which led to another call to the HMRC VAT helpline, I was told that it should be Zero rated (Therefore T0). confuse

Using T1 with nil VAT will give the same result.

Because this scenario is relatively rare, I now use T0 and report the supply on the return. I will argue the case if it ever comes up

If only HMRC staff could all sing from the same hymn sheet evileye

Bill

PS A plumber whose turnover is below the VAT registration threshold!!. Are there any out there?

Nicola27 · Veteran Member

Hmmmm.....

These are things I regularly have to T9:

Window Cleaner
Odd Job men eg washing machine repair, computer repair, fixing a tap, sink etc
Bands and DJs
Taxi Receipts (my company pay staff taxis)

All are suppliers who are not VAT registered so untill today i have been told to T9 them all :S

Should i recode all this to T1 with 0 Vat?

P.S this part of my weekly journals no not a rare occasion for me :(

-- Edited by Nicola27 on Wednesday 9th of February 2011 03:56:14 PM

Wella · Expert

Nicola27 wrote:
........
Window Cleaner
.......

Was the very scenario I descibed to HMRC.

I wonder what you would be told if you phone the VAT help line?

Bill

Nicola27 · Veteran Member

So confusing is this VAT business, i will call them when my bosses are out the office

...so as you got 2 different answers, will whatever answer i get will that be the majority that rules hahaha

gbm · Guru

Bill, I can understand your confusion. I rang the VAT helpline, and was told that it was the underlying supply that would determine where it got posted. So if the underlying supply was standard rated, then it should be T1 (with VAT of £0).

Susie Sue · Senior Member

I would agree with that. If I receive an invoice that would have VAT added if they were VAT registered then I would use T1 and zero the VAT.

ADAS · Guru

Wella wrote:

After a very interesting debate on this forum, which led to another call to the HMRC VAT helpline, I was told that it should be Zero rated (Therefore T0).

That's the same as my old course notes,

I use:

T0 - zero rated supplies and transactions with non vat registered businesses

T2 - exempt items but business services.

T9 - non business services eg wages

hmm

semsley · Guru

All this assumes one is using SAGE!!!!!
T0 is used for zero-rated supplies and non VAT registered suppliers (included on VAT return)
T1 is used for standard-rated supplies of VAT registered suppliers (included on VAT return)
T2 is used for exempt items (postage, insurance etc) (included on VAT return)
Most people use T5 for the lower rate for domestic/heating fuel (included on VAT return)
T9 is used for outside scope of VAT (bank transfer/internal transfers/wages/paye/some bank charges/journals etc) (NOT included on VAT return)

It is very important that the correct codes are used in SAGE (of course you can change them to any T you like but make sure whichever you use the correct items are included or excluded in the VAT return this is done by checking or unchecking the include in VAT return box when editing a T code).

For other packages and manual you just need to know what items are included/excluded from the VAT return.

-- Edited by semsley on Wednesday 9th of February 2011 11:24:59 PM

gbm · Guru

There you go Nicola, there seems to be more weight putting it as T0.

At the end of the day:

1. There is no input VAT to go in box 4
2. The amount charged by the supplier goes in box 7 regardless of whether it is posted to T0, T1 or T2
3. Generally (not every time, but more often than not), the amounts charged by a non VAT registered business will be relatively small

Nicola27 · Veteran Member

but why would you T0 it?

The case for T1 with a 0 balance of VAT makes sense, as the supply is vatable, the case for a T0 has just confused me as the supply itself is not Zero rated.

I will recode my entries to T0 (unwillingly), i know it doesn't make much difference, as long as i am not T9ing everything, but i like to try and do things properly!

MarkS · Expert

Hi Nicola

My viewpoint is that it doesnt really matter if you T0 or T1 a non VAT registered supplier.

At the end of the day there is no effect on box 4 (the amount of input VAT claimed) only T7 (net supplies).

At the end of the day T7 is mainly used for statistical purposes. The VATman will total the entries in T6 (net sales) in an accounting year and reconcile it to the sales shown in the accounts and ask for explanation of any differences. I have never know the VATman to do anything similar to T7 as it a lot more difficult to identify what expense accounts to compare it too.

In summary, code non VAT registered supplies to either T0 or T1 (my view is probably T1 if it would have been T1 if there was VAT on it). As long as you explain what you have done this if you have any enquiry, should the question be raised, then i think your fine. The VATman is just really interested if output VAT has been underdeclared or input VAT has been overclaimed. Funnily enough i cant remember them ever highlighting where output VAT has been overdeclared or input VAT underclaimed. They are just there to try and get more money than you have paid already (plus interest plus penalties)

MarkS

Nicola27 · Veteran Member

Yeah i know it's not majorly important, i just like to feel i am doing things the right way :)

Thanks for all your help guys

P.S HMRC Have not replied to my email about it haha

annepebo · Veteran Member

I was chastised during a VAT inspection some years ago as my staff had been coding items incorrectly, although the box 4 fig was correct. He had looked at the transaction detail of the sage vat report where some transactions from non-registered suppliers had been posted to zero & exempt (T0/T2) rather than standard (T1).

I was informed at the time that it is the type of supply that determines whether it is zero/standard/exempt for VAT, not the vat status of the supplier. I already knew this to be the case having made myself aware of the HMRC rules, but obviously some of my staff were less sure (slap on the wrist for me)

So as windowcleaning/plumbling etc would be a supply that is standard rated for VAT purposes then T1 is where it should go (with no value in vat of course) There are specific rules regarding goods and services that fall into zero rated category, construction work springs to mind.

Ultimately it will not make any difference to the vat liability of course, but I believe that it should be posted correctly - why not ! its as easy as posting it wrong. By the way some accounting software does differentiate or produce a report so the problem never crops up.

PS HMRC helpline staff will often offer conflicting advice, or just don't care. I am happy to follow the advice of my (not so) friendly VAT inspector.

By the way use T9 only for transactions that do not need to show on the Vat return - ie not input or output (sales & purchases) - use it for wages, pensions, interest etc etc

-- Edited by annepebo on Thursday 10th of February 2011 12:35:08 PM

Nicola27 · Veteran Member

Thats the issue i had with using T0, didn't make sense to me. I know it is quite a trivial thing for us to be talking about over and over again!

I think i will use T1 from now on with no vat added to it, makes sense in my head.

I got a reply from HMRC:

Subject: Supplies outside the scope of VAT

Thank you for your enquiry of 9 February 2011, regarding the VAT treatment of supplies made by a non-registered trader.
I would recommend that you refer to the following guidance given in our Public Notice 700 (The VAT Guide): Paragraph 3,2 advises:
"A taxable person is an individual, firm, company etc who is, or is required to be, registered for VAT. "Supplies are outside the scope of the tax if they are: made by someone who is not a taxable person."
Public Notice 700 can be viewed on-line at -www.hmrc.gov.uk/thelibrary/vat.htm

Yours sincerely
VAT Written Enquiries Officer

That was a really in depth answer!

ADAS · Guru

Please correct me if I'm wrong but does the reply Nicola received from HMRC conflict with Anne's advice from HMRC.

I'm confused and agree with Nicola, it would be good to know the "correct" way...

Susie Sue · Senior Member

Looks like it to me! so we still don't really know do we!? Well done HMRC.

MarkS · Expert

Looks like HMRC dont know

Arguments that could be either T0, T1 or T9.

As said before dont think it is big issue either way what code you use as long as you are consistent and explain your reasoning should you be asked.

At the end of the day it doesnt result in the VAT liability being wrong which is all HMRC is really worried about.

Wella · Expert

ADAS wrote:

Please correct me if I'm wrong but does the reply Nicola received from HMRC conflict with Anne's advice from HMRC.

I'm confused and agree with Nicola, it would be good to know the "correct" way...

It does agree with what I was told the first time I rang HMRC help line, and what I understood from the VAT 700 manual.

I'm having a de ja vue moment on this! I can make sense of the above, if you consider it is not the item or service that carries the VAT status but the person supplying it.

Nichola, print off and keep safe the email response. If HMRC ever say it is wrong on an audit, you will be covered, as you have an official response from HMRC. So you should be safe.

At least you wont have to change all your codes biggrin

Bill

-- Edited by Wella on Friday 11th of February 2011 12:03:54 PM

Nicola27 · Veteran Member

i already did :(

Betty6688 · Newbie

HMRC do not take responsibility for their actions. They have stated that any advice given either by phone or letter may not be correct and basically cannot be used against them in future if they argue with you.

Non registered customers was a debate in our office a few years ago and like you we had different responses from the call centre. Basically we agreed that as the supplier was not required to register for vat they were in hmrc's eyes - outside the scope of vat and therefore would be shown as T9.

Lumpy · Veteran Member

Betty6688 wrote:

Non registered customers was a debate in our office a few years ago and like you we had different responses from the call centre. Basically we agreed that as the supplier was not required to register for vat they were in hmrc's eyes - outside the scope of vat and therefore would be shown as T9.

When you say that the supplier was not required to register for VAT is that by virtue of his turnover?

Any of my suppliers who are not registered for VAT for that reason I treat as outside scope. (Sorry, don't use Sage so can't quote T codes! wink )

-- Edited by Lumpy on Saturday 12th of February 2011 09:34:35 AM

Betty6688 · Newbie

Two that's right.

Rhianrach · Expert

We aren't registered and we use T9.

Nicola27 · Veteran Member

Oh boy here it goes again!

semsley · Guru

Surely using T9 or Outside scope would skew the purchases figure as for this code the purchases are not included in the VAT return.

Lumpy · Veteran Member

But if you start including Outside Scope figures in boxes 6 & 7 the Input & Output (boxes 1 & 5) VAT figures will be less than the calculated amount based on figures in 6 & 7. I was told during a VAT inspection some years ago that boxes 6 & 7 are only on the form as a check that the amounts in boxes 1 & 5 are within an acceptable range.

-- Edited by Lumpy on Monday 14th of February 2011 10:38:00 PM

clott · Member

Just to add to the debate, a VAT inspector informed me that T1 is the code to use for standard rate purchases from a non VAT registered person (VAT = 0). They are still taxable services received so should be recorded as such.
I don't think that this goes against what HMRC have said. When they say that 'supplies are outside the scope of the tax' do they not mean as far as the supplier is concerned, not the purchaser?
I VAT !

Donna CBK · Senior Member

Sorry but really have no idea why HMRC inspector would suggest use T1 for all purchases.
T2 = code for Exempt items
T0 = zero rates
T5 = usually set up for Lower Rated ie Gas/Electric
T3 = Suggested code for "old" Standard Rate
T9 = Non Vatable Tax Code

if you check the tax code number in Sage (Settings/Configuration) You will note column IN USE - if Y the tax code included part of VAT return. Additionally Edit a tax code you will note the ticked box for "item used in VAT return & additionally tick box for "Reverse Charge"

clott · Member

Just to clarify - he certainly didn't suggest using T1 for all purchases - but for standard rate purchases. I work with a company that has partial exempt status. The correct use of T0 and T2 therefore is crucial, even though the VAT amount for both is 0.

Suffolker · Senior Member

Ops I've got T1 = 17.5% Standard Rated Transactions
T2 = 15% Standard Rated Transactions
T3 = 20% Standard Rated Transactions

So if I post a transaction using T1 then change T1 to 20% and post a diff transaction in the same month will the previous trans still be at 17.5%?

Susie Sue · Senior Member

Yes - the previous transactions will stay at 17.5%

Suffolker · Senior Member

Thanks Sue :)

Donna CBK · Senior Member

Hi - I would err to caution on amending the T2 tax code as this is set up for the exempt rate which you should have.

The reason for changing T1 as the current Standard VAT is that it is the default tax code and therefore everytime you click into an area to post T1 will be stated (unless ofcourse you have changed all your default settings). ie batch invoice, receipts, payments and more importantly if you raise a sales invoice and products.
It is easier just to amend the rate than amend all areas

Suffolker · Senior Member

Sorry bringing this one back again... Bank charges some say T2 and some say T9 which one shall I code them to?

Also are the following correct please:

Subcontactor payments = T9

Regular Wages = T9

Delivery Companies like Parcel Force that charge VAT = T1

Postage Stamps = T2

Subcontractors Tax = T9

PAYE = T9

All Insurances = T2

Bank Interest Received = T9

Capital Introduced = T9

An Invoice with work done for a disabled client so is exempt = T2

Items that are personal but have Vat on = T0

Sales Receipts = T9

A Non VAT Registered Bookkeepers Fee = T0

MOT = T9

VAT payment = T9

Also if fuel has been paid but no vat receipt is present would that be coded to T1 with the vat put as zero?

Many thanks in advance :)

-- Edited by Suffolker on Sunday 17th of July 2011 01:04:14 PM

-- Edited by Suffolker on Sunday 17th of July 2011 01:05:34 PM

Wella · Expert

Hi Suffolker

The supply of financial services (which includes bank charges) is exempt (not zero rated, or outside the scope), which by default makes them T2

Edit: You added more while I was replying smile all seems Ok except I would use T0 for the fule payments with no receipts (although in the scheme of things they both end up on the VAT return, with no VAT claimable)