There are a few reasons why an invoice may not have VAT. The products may not be VATable, or they are exempt, the products may be VATable, but the government have made the VAT 0% (children's clothes, books and magazines and some foods), or the supplier may not be VAT registered or not based within the UK.
The main difference you need to consider is whether the transaction involves the purchases of goods or services, or is it just a transfer of money for another reason?
Only use No VAT (or T9 in Sage) if the transaction does not involve something which could be VATable in the UK, such as bank transfers, salaries, paying taxes, insurance claims, loans, dividend payments, local authority rates or similar. This means nothing from the transaction will appear on your VAT return.
If you are buying from a non-VAT registered supplier, then use code T2 in Sage (or VAT Exempt purchases) so the net figure still appears in box 7 of your VAT return, but no VAT appears in box 4. I would also use T2 exempt for air and train travel, purchases from outside the European Union and anything else described as exempt!
Currently, whilst we remain in the EU, you also need to track purchases from EU members using T7 or EC Acquisitions (zero-rated) and T8 EC Acquisitions (20%) depending on whether the products would incur VAT in the UK or not. This will change when we eventually do Brexit and leave the EU, but they are still valid at the moment.
Clear as mud? Yes, it's hard to cover such a complex topic as VAT in a short blog post, so if you want bespoke advice for your business then do give me a call on 01604 420057 or click here to ping me an email and let's see how I can help you.
Alison loves bookkeeping. She has been helping clients to be better bookkeepers in Sage 50 for over 22 years and has more recently added Xero Accreditation to her list of skills.
She specialises in a very unique hand-holding method of training, helping bookkeepers and business owners to use their accounts software as and when they need support in setting up and producing their invoices, reports and financial information.
Alison combines her role at Silicon Bullet with running two network marketing businesses and is also a Regional Leader for 4Networking as she likes to keep busy.
You know what they say, if you want something done well ask a busy person!
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