Personally I would post it as T1 but with 0.00 in the VAT column, as T2 would imply it was an exempt supply, which it is not. (I assume?) Others may do things differently.
The following is an excerpt from the TAX_CODE table for the demo company in a Sage Instant Accounts setup:
TAX_CODE
DESCRIPTION
TAX_RATE
VAT_INCLUDE
EURO_SALES
EURO_PURCHASE
RELATED_CODE
RELATED_RATE
T0
Zero rated
0
1
T1
Standard Rate
20
1
T2
Exempt transactions
0
1
T3
0
1
T4
Sales to customers in EC
0
1
1
T5
Lower rate
5
1
T6
0
1
T7
Zero rated purchases from suppliers in EC
0
1
1
T8
Standard rated purchases from suppliers in EC
0
1
1
1
20
T9
Non-Vatable Tax Code
0
0
The HMRC guidance says "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 goods/services are supplied "outside the scope" it follows that they are received "outside the scope". T9 is the code to use for supplies made "outside the scope" of VAT. It is the only code with a 0 in the VAT_INCLUDE column. The 0 means it is omitted from VAT returns altogether.
From previous VAT inspections, HMRC are non too bothered whether the non VAT registered supplier is T0 or T9 as long as it is not T1 or T2. The goods/services supplied may well be Vatable but only if the supplier is registered. I always use T0 and never had a problem.
Can someone explain to me what changes will be made to Box 4 and Box 7 on the VAT Return by using Code T0, T1 or T2? Obviously T9 won't be appearing. I use T0.
EDIT : Apart from the obvious no changes to Box 4. I can be so dumb at times it surprises me.
-- Edited by Peasie on Wednesday 4th of December 2013 04:39:51 PM
__________________
Never buy black socks from a normal shop. They shaft you every time.
hi My understanding is it should be T0 as I thought you have to report all purchases on your VAT return, T9 is itsme out of scope - ie expenses/wages etc.
Peasie - T1 will increase box 4 AND box 7, whereas T0 will only increase box 7. Oh Ive just noticed that youve answered your own question in the Edit. Not dumb at all me dear!
__________________
Joanne
Winner of Bookkeeper of the Year 2015, 2016 & 2017
Thoughts are my own/not to be regarded as official advice,which should be sought from a suitably qualified Accountant.
You should check out answers with reference to the legal position
T0, T1 and T2 will appear in Box 7 as by default they are set up this way. See Settings/Configuration/Tax Codes, if the column called "in use" is ticked Y will appear in the VAT return. To have it so it doesnt appear just click the relevant code, click edit (od double click) then untick the box "include in VAT return"
I would tend to use T9 so doesnt appear on VAT return at all but as doesnt affect the VAT paid then the VATman wouldnt be that bothered either way as boxes 6 and 7 are just used for statistical purposes. As long as you explain what you have done I am sure any VAT inspector would accept either treatment.
I use T0 for exempt and zero rated and T2 for non VAT registered business. The net supplies want to appear in Box 7 as you know, and this achieves this by default. T9 is usually the default for items that are not suppose to appear on the return, as stated above wages, drawing, payments to the VAT man!! Although I have seen people who seem to have T2 as T9 and vice versa! Not sure if they made these changes themselves
Ultimately, how you use the default codes (or set them up) doesn't matter, as long as the reporting is correct. To be fair, you could set up T1 to not appear on the return and use T99 as the standard VAT code, but that would just be silly :)
From previous VAT inspections, HMRC are non too bothered whether the non VAT registered supplier is T0 or T9 as long as it is not T1 or T2. The goods/services supplied may well be Vatable but only if the supplier is registered. I always use T0 and never had a problem.
So, say, for the sake of argument, if you only bought goods from non-vat registered businesses (not very likely I know, but bear with me) and used T9 then none of your purchases would appear on your VAT return and you would have no VAT to reclaim?
Also I was using T1 with 0.00 in the vat column as, as stated above, the goods themselves would be vatable, but because the business is not registered, no vat is actually charged.
I thought T0 was used for supplies that are vatable, but at 0%.
Of course, the VAT man probably doesn't care, as long as he gets his money on time!
While it will not affect the majority of businesses, there is the possibility of partial exemption. For that reason it is better to give exempt and zero rated items separate codes. Secondly as zero is a VAT rate that could be changed easily as opposed to exempt which would need new legislation to change it, separate codes could be needed in the future anyway. As it takes no extra effort to click T2 rather than T0( or which ever codes you choose to use) I would always separate them.
So, say, for the sake of argument, if you only bought goods from non-vat registered businesses (not very likely I know, but bear with me) and used T9 then none of your purchases would appear on your VAT return and you would have no VAT to reclaim?
Correct. All your purchases are outside the scope of UK VAT. This is a separate category to 0% or exempt.
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
It'd be a shame to let this one go.
In the absence of HMRC guidance Ian has made a logical leap by applying the given advice for selling (above). Personally I have difficulty with it in that the nature of the supply should determine whether something is VATable. Otherwise (say a box of chocolates) miraculously becomes T9 'Outside The Scope' when a trader is below a political, arbitrary threshold set by the UK Government. HMRC are saying the chocolates become much like Wages, Business Rates or Drawings. If that's the correct way of looking at VAT then I'm a T0 banana.
In addition to the irrational guidance (which doesn't say purchases), if I'm not mistaken the registration threshold here is much higher than elsewhere in Europe, so it seems the box of chocolates becomes T1 VATable if you don't finish eating them on a journey from Bognor Regis to Calais. Then, if you carry on through the low countries and central Europe it will ping backwards and forth between T1 VATable and T9 Outside The Scope as you cross each border.
OK I've left a gaping hole in my argument but come on, the goods are a luxury item and standard rated.
There have been a few debates on the subject over the years (usually with me stuck in the middle)
In theory I am in the camp of the Outside the Scope = T9. There are supplies, and services that are outside the scope of VAT that are definitely coded T9 e.g. Car MOTs (unless subcontracting and reselling), on road parking fees are outside the scope, and some services supplied by local authorities.
In practice, with a few exceptions (see above) I actually code them zero rated. VT Transactions only has three options vatable, non vateable, and outside the scope, so there's no need to consider if it is exempt, or zero rated as both end up in the same boxes on the return.
I recently had this confirmed, when I attended a VAT audit last week, and I asked the very same question. Both inspectors (yes they came mob handed), agreed that although They weren't 100% sure but they would rather see the items listed on the return than not.
Bill
-- Edited by Wella on Saturday 21st of December 2013 05:42:13 PM
Moneysoft has 5 pre-set ones and you can make a further 16 lol. Can't think why anyone would need to make that many but "Not registered" is one I've created now and again.
I recently had this confirmed, when I attended a VAT audit last week, and I asked the very same question. Both inspectors (yes they came mob handed), agreed that although They weren't 100% sure but they would rather see the items listed on the return than not.
Bill
Interesting. Frankly, it's not fair on the VAT auditors that THEY cannot give definitive guidance.
To describe supplies (as HMRC's selling guidance does) as 'Out of Scope' merely because someone is not required to Register is quite misleading. These two auditors are ill-served by it as well as ourselves.
Have a good one Bill.
-- Edited by Wella on Saturday 21st of December 2013 05:42:13 PM
You can add a 'not -registered' tax code to Sage, although it seems the debate is about whether or not they such items appear on the VAT return or not. Interesting that the VAT inspectors cannot give a definitive answer neither, so I reckon as long as you are consistent then that should be ok. I personally use T0 (Sage) and only use T9 for things like Wages/ bank transfers/VAT payments etc. The debate could rage for a while!
__________________
Joanne
Winner of Bookkeeper of the Year 2015, 2016 & 2017
Thoughts are my own/not to be regarded as official advice,which should be sought from a suitably qualified Accountant.
You should check out answers with reference to the legal position
It gets worse. As I have said in previous incarnations of this debate, I even phone HMRC help desk twice . The first time the advisor went off and asked his supervisor, came back and said it is definitely outside the scope. The second time (after a further debate here) I phoned again, to be told that they should be zero rated
In the end I decided to make up my own rule, which is to zero rate, unless it was on the list of out of scope transactions, or stated elsewhere.
the nature of the supply should determine whether something is VATable.
An alternative view is that both the status of the supplier and the nature of the supply determine whether something is VATable - not just the nature of the supply.
HMRC's definitions (emphasis in red added):
taxable person: any business entity that buys or sells goods or services and is required to be registered for VAT - this includes individuals, partnerships, companies, clubs, associations and charities
taxable supplies: all goods and services sold or otherwise supplied by a taxable person which are liable to VAT at the standard, reduced or zero rate
I think it reasonable to conclude that goods or services supplied by non VAT registered persons are not taxable supplies (irrespective of the nature of the goods or services supplied). When such goods or services are purchased (as opposed to sold) I think it equally reasonable to consider both the status of the supplier and the nature of the goods or services supplied in determining whether a taxable supply has taken place.
I guess we'll probably have to agree to disagree on this. I'm a two stage test guy!
Edited for spelling.
-- Edited by bro0010 on Tuesday 24th of December 2013 04:54:44 PM
I agree with you saying it is reasonable to conclude they are not taxable supplies under UK law. The VAT Act states a non-registered trader is a "non-taxable person" and that their supplies are "out of scope".
This bothers me because during a Visit, a VAT Officer threatened to revise 3 years VAT Returns for a Grocer/Off Licence client based on figures in the statistical boxes. This was done to frighten the client and perhaps myself and because she possibly thought she could get away with it. The threats were much in HMC&E favour.
Being reasonable, it is a wonder the question pops up so often here and that VAT Officers can be dangerously unsure of the consequences of entries made to Boxes 6 and 7.
I've argued that that the UK goes too far saying that a supplier trading below the highest VAT registration threshold in the world is "Outside The Scope".
Why did the UK VAT Act define a taxable person as one who required VAT Registration whereas the EU Directive merely says this person does not have to charge VAT ?
I suspect that due to Britain enacting VAT because it wanted to join the EEC rather than on VAT's own merits, a little reluctance crept into the legislation. Maybe the notion of a non-taxable person enshrined in UK law would allow more freedom of movement in future legislation.
The ensuing muddle enables tucking-in otherwise standard rated supplies with Statutory Charges and Wages no matter how incongruous it is to bed them together. A few months down the line, without changing it's products, the same supplies regularly shape-shift from 'out of scope' to standard rated.
In amongst Googling I came across this which I've not seen before:
" The list of transactions that are outside the scope of VAT per HMRC is quite small. In particular, all supplies that are zero rated, exempt or from unregistered suppliers should be included in your return.
Imports, zero rated supplies, exempt supplies and supplies from unregistered suppliers should be included in box 7. "
I cannot find support for these two phrases at the (per HMRC) link.
Reference to excluding supplies from non-registered traders is also conspicuously absent from the regular Box 7 guidance here :-
" The list of transactions that are outside the scope of VAT per HMRC is quite small. In particular, all supplies that are zero rated, exempt or from unregistered suppliers should be included in your return.
Imports, zero rated supplies, exempt supplies and supplies from unregistered suppliers should be included in box 7. "
I cannot find support for these two phrases at the (per HMRC) link.
Hi Tim and best wishes for the new year to you and all at BKN too.
The shape-shifting is brought about by the change in the status of the supplier because, as you say, there's no change in the nature of the goods.
It's that two tests thing again.
Actually, I tend to try to look at it slightly differently to make the square pegs fit into the round holes. I regard the type of supply as fixed in nature with the things that HMRC quote as types of supply that are "outside the scope" being classified as transactions "outside the scope" for VAT purposes. But they're not the only things classified as "outside the scope" for VAT purposes. If the supplier is not VAT registered then a Standard supply remains a Standard supply but is classified as a transaction "outside the scope" for VAT purposes because of the status of the supplier. Either the type of supply or the registration status of the supplier can result in an "outside the scope" classification. In Sage I look at it like this and don't really see any shape-shifting going on:
Possible types of
Sage T code
Sage T code
supply (ignoring
if supplier
if supplier is
supplier VAT reg status)
is VAT reg'd
not VAT reg'd
Standard
T1
T9
Reduced
T5
T9
Zero
T0
T9
Exempt
T2
T9
Outside Scope
T9
T9
I'd noticed VT Software's views on the matter myself but, in the absence of them being grounded with references to legislation or official guidance, I'm not inclined to give their views more weight than the many other contributions on this subject. I'm intrigued that they have reached a contrary conclusion to mine but like you "I cannot find support for these two phrases at the (per HMRC) link."
Kind regards
Edited to add the table and preceding paragraph
-- Edited by bro0010 on Thursday 2nd of January 2014 01:19:43 PM
but they would rather see the items listed on the return than not.
