VAT (Value added tax)

Transcription

1 VAT (Value added tax) Note it may be possible to use the Adobe Acrobat bookmarks facility to navigate this document If your enterprise is registered for VAT then the system will handle all of your VAT transactions and produce VAT reports. You can also file your VAT100 and VAT101 (ECSL List) returns online through the Government gateway to HM Revenue and Customs (HMRC). The principles of VAT are simple: On sales to your customers (supplies) you charge and collect VAT known as OUTPUT TAX You deduct the VAT you have been charged by your suppliers (acquisitions) known as INPUT TAX You pay to or receive from HM Revenue and Customs the difference. Unfortunately the actual operation of VAT is more complex. Businesses are obliged to cope with multiple rates of VAT, exempt supplies, rules for trading with European Union as well as other imports and exports. VAT on certain types of business expenses cannot be recovered as input tax. The system will deal with all of these issues provided you make a little effort to set up and follow the processes accurately. As well as the standard VAT scheme, HM Revenue and Customs allow some special schemes i.e. Cash Basis Scheme see VAT notice 731on the HMRC web site Flat Rate Scheme - see VAT notice 733 on the HMRC web site Flat Rate Scheme cash based turnover - see VAT notice 733 on the HMRC web site Annual Scheme - see VAT notice 732 on the HMRC web site The system will deal with these schemes. To users unused to it, the language of VAT can be confusing and so we strongly recommend that if you are uncertain about any aspect of VAT recording and reporting you should seek appropriate advice from your advisors. The use of online filing of VAT returns is efficient and saves time, it can also reduce the possibility of errors, and we commend it to you. It is quick and easy to set up; see the Online VAT filing user guide for full details. Page 1 of 35

2 Table of Contents VAT Schemes... 4 Setting up for Recording VAT... 4 Flat Rate Configuration... 7 VAT Codes (Rates of VAT)... 8 Registration and deregistration... 9 Deregistration... 9 Transition from one VAT scheme to another Recording of VAT Recording of VAT Flat rate scheme Special Situations Standard and Cash based Schemes a. Cash Scheme and Miscellaneous Deposits b. Selling goods and services to customers in the EU c. Selling goods to other parts of the world (exports) d. Buying goods from EU suppliers e. Buying goods from other parts of the world (imports) f. Buying and selling services outside of the UK (Reverse Charge) Reverse Charge Procedure Special Situations Flat rate and Flat rate cash based turnover method a. Amending the Flat rate effectivity dates / Ending flat rate b. Change of Flat rate percentage c. Cash Scheme and Miscellaneous Deposits d. Selling goods and services to customers in the EU e. Selling goods to other parts of the world (Exports) f. Buying goods from EU suppliers g. Buying and selling services outside of the UK (Reverse Charge) VAT Reporting and VAT100 / VAT101 (ECSL) returns VAT Online Filing VAT 100 Reports VAT101 (EC Sales List) VAT Transactions Report Transactions by VAT Code Report a. Annual Accounting Scheme Completing the VAT return and paying any VAT Liability VAT Refunds Dealing with a VAT Tax Inspection Specialised VAT Transactions Page 2 of 35

3 a. Disallowable VAT such as entertainment expenses b. Dealing with Fuel scale charges (fuel provided for company vehicles) c. Making a VAT Partial Exemption Adjustment d. Dealing with Late Invoices e. Dealing with errors and omissions f. Bad Debts g. If you incur VAT on other parts of the EU Page 3 of 35

4 VAT Schemes In the standard scheme VAT is accounted at the tax point date shown on invoices raised or received. The Cash Accounting Scheme allows you to account for VAT on the basis of cash amounts actually received or paid out. Certain conditions must be fulfilled before you can use the cash accounting scheme, please check with your advisor before selecting this option. Annual Accounting is aimed at smaller business entities, the scheme works by allowing one return each year. A number of interim payments (usually nine) are made during the year and a balancing payment made when the annual VAT return is made within two months of the end of the accounting year. The Flat rate Scheme offers another option. Under the normal VAT rules the details of the VAT and the net value have to be recorded for each sale and purchase transaction. For the flat rate scheme however it is not necessary to record the individual VAT details, but simply accumulate the value of all VAT inclusive sales (supplies), including any zero and exempt rated supplies, and apply a flat rate percentage to the total in each VAT period. No separate claim for input VAT (VAT on purchases) is allowed or necessary. The scheme is only open to business whose annual taxable turnover does not exceed certain limits. (Please check with your advisor) In essence there are two versions of this scheme. The first is based upon the VAT inclusive turnover calculated as invoices are raised (the accruals principle of the standard VAT scheme). The second is based upon a cash basis i.e. when invoices are actually paid, equivalent to the Cash VAT scheme. Setting up for Recording VAT If you are registered for VAT then the system will need to be set to track VAT. This is done in the Profile screen. Having done this a VAT configuration screen allows the user to configure VAT appropriate to the business requirements. We suggest you have to hand the following pieces of information and knowledge of the VAT scheme you are using: VAT Registration Number The number given by Revenue and Customs on registration, it should appear on all your business invoices and will do so on system produced invoices when entered here. This number is shown on the certificate of registration. Date of registration The date of VAT registration confirmed on the certificate of registration issued by HM Revenue and Customs. Postcode The postcode of the registration address, the business postcode that appears on the VAT registration certificate or has been formally amended to HMRC records. VAT Scheme: Choose either the Standard Scheme, or the Cash Accounting Scheme (see notes above) Page 4 of 35

5 Last month of VAT Quarters: Usually VAT is accounted for on a quarterly basis however you can account on an annual or monthly basis. If you are not sure as to your VAT accounting periods confirm with your advisor. Next VAT Period End Date: The date of the last day of your open VAT accounting period. This date needs to be set initially by the user. Subsequently, the process of accepting a VAT return will automatically roll the date forward as appropriate for either quarterly or annual schemes. Once you have the above information, access the profile via the Entity Name menu Entity Name à Profile à Accounting Options Tab Click on the Track VAT box to activate. A VAT menu is now visible in the top-level menu items. Messages and warnings may appear requesting the user to complete the configuration. The next stage is to configure VAT to operate as required by the business. This is done in the Configure VAT screen. VAT à Configure VAT A VAT configuration screen is presented. The details of your VAT registration number go in the VAT Number field The two-character alphanumeric country code prefix (GB for the UK) is required to appear on sales invoices issued with zero rated supplies to vat registered customers in EU member states. To ensure this happens prefix the VAT number with the code. Note that the validity of a VAT number is checked by the system against HMRC validity algorithms. Also enter the Registration Date. The Final Return (Deregistration Date) will only be entered if it is indeed the final return for the business. See the de-registration section below. If you would like to use the Government Gateway to file your VAT100 and ECSL (VAT101) online directly from the system click the Use Online VAT Filing box. With online filing is a requirement to use electronic payment, if you would like the system to automatically post the cash payment (or receipt) select the relevant bank account for the posting to go to from the AutoPost Direct Debit drop down box. Page 5 of 35

6 If you are using the flat rate scheme click the Flat Rate VAT box, note that if you are using the flat rate cash based turnover method, please be sure that Cash accounting scheme is also selected in the VAT Scheme box. Select from the drop down box the VAT Scheme operated, either standard or cash. The next two fields require details of the VAT Periods that apply for reporting and the Next VAT Period End Date that will apply as you start to use the system. Note that period end dates are usually at a month end, but it is possible to have a mid month such as the 5 th, just enter the date as normal. Note that dates of the 28 to 31st will at the next VAT period default to the calendar month end. If you are UK VAT registered trader that supplies goods, or a trader that supplies services that would be accounted for by a registered trader in another EU member state using the reverse charge mechanism, Page 6 of 35

7 then a quarterly (or monthly) EC sales list (VAT101) return is required by HMRC. Select the appropriate ECSL Filing Cycle for the business. The default is quarterly. The filing must take place within 21 days after the calendar quarter end for online filing or 14 days if using paper filing. If the quarterly turnover exceeds a limit ( 35k from 1 st January 2012) for goods then the ECSL cycle is monthly. Enter the date of the Next ECSL period End. This will only need to be set once, unless the filing cycle is amended. If using quarterly filing this will be 31st March, 30th June, 30th September or 31st December. Monthly filing will require the month end date. Note that the ECSL filing deadlines are not necessarily the same as the VAT 100 deadlines for the business. If online filing for ECSL is being used the VAT postcode is required. This is the postcode that appeared on the registration documentation, or was subsequently formally amended with HMRC. Click Submit to save the details. The recording of VAT transactions starts with immediate effect, including all transactions dated this day. Flat Rate Configuration If you have ticked the flat rate scheme box you will be directed to an additional screen allowing for input of flat rate percentages and effectivity dates. Page 7 of 35

8 Click Add Item and in the first instance the From Date is the date when HMRC granted permission for the entity to use the flat rate scheme and the To date is the date when the use of the particular rate changes or the scheme changes to some other. These dates are important for the correct transition between schemes. Enter the flat rate percentage (In the format xx.xx) to be applied in the Flat Rate box. Note that if the registration date is less than 12 months in the past it is important to enter a record for a discounted rate ending on the day before the first anniversary of VAT registration. A second record it then required with a From Date on the anniversary with the main rate. Click Submit to save the details. VAT Codes (Rates of VAT) VAT codes are used to select VAT rates and control how the system deals with VAT transactions. The accurate use of codes ensures that the recording and reporting of VAT is correct. Current VAT rates are 20%, 5%, or 0%. The correct rate code needs to be selected when a transaction is entered. If/when the Government alters VAT rates; the new ones will be made available from the appropriate dates. Additionally some items are exempt from VAT and the exempt rate will need to be selected. An example of an exempt supply is the purchase of insurance. Details of what rates apply to what are available from Revenue and Customs publications and your advisor. Some special codes exist to deal with particular circumstances and these are discussed below. If your business trades in the European Union either selling or buying, Revenue and Customs have some additional recording and reporting obligations. The key for the system to handling these transactions accurately is that the country of the customer or supplier is set up correctly. See Setting up a customer or Setting up a supplier user guides and also below. Average (Avg.) This code can be used where the transaction is recording an aggregation of mixed VAT codes in a single line entry with the VAT amount manually set as required. This code will also appear in VAT transactions reports in an entity using the cash basis scheme. This is because there is a possibility that a transaction with mixed vat rates may be partially paid, in which case the vat has to be pro-rated as an average rate. Page 8 of 35

9 Out of Scope This VAT code is only used where a transaction is not in the VAT system at all. For example payments into a money purchase pension scheme are Out of Scope because they are equivalent to savings. Payments of salaries or wages are also out of scope as are repayments of director s loans. Using this code will result in no VAT reporting impact. Use this code in making or receiving actual VAT payment amounts. None This code is used where there is no VAT on a transaction. This is not the same as zero rated or exempt. The impact in the system is that the value of the purchase is included in the VAT 100 return, but no actual VAT. You would use this for instance if a purchase is made from a non-vat registered supplier, who would not add any VAT. The purchase value is then picked up in the VAT100 return. Registration and deregistration There is an obligation to register when the value of your businesses taxable supplies (or distance sales or European Union acquisitions) in the prior 12 months exceed the current threshold. You must notify the HM Revenue and Customs National Registration Service within 30 days from the end of the month that this occurred. Alternatively if you expect your taxable supplies (or EU Acquisitions) in the next 30 days alone to exceed the threshold, you must notify within 30 days of that date. You will have to account for VAT the first day of the second month after you exceeded the registration threshold. We strongly recommend that you consult with your Advisor in deciding your VAT position. When your VAT registration has been confirmed, you will know the date from which you must account for VAT. Deregistration Under certain circumstances deregistration may be allowed or required. In that event a date of cancellation will be notified by HMRC. In the VAT configuration screen enter the date provided by HMRC for deregistration in the Final Return (Deregistration) Date box. The current VAT100 return will now default to this date and all open VAT transactions dated up to and including this date will be included. Finalise the return in the usually way. If there are any transactions in the system dated after the final return date showing a VAT implication these will need to be amended to remove any VAT. When this is complete return to the Business Profile Accounting Options tab and un-tick the Track VAT box. From now on transaction input screens will not show any VAT reference. If in the future reports are required from any closed VAT periods simply temporarily switch Track VAT back on to see the VAT menu and VAT reports. Viewing any transactions from the period when VAT was in effect will show the VAT impact as recorded and reported. Page 9 of 35

10 Transition from one VAT scheme to another These are not trivial changes and it is recommended that they be completed with the assistance of your advisor. On the day that the transition is agreed (usually at the beginning of a VAT reporting period), amend the VAT scheme selection box in the VAT tab of the business profile. VAT à Configure VATà VAT Scheme Try to ensure that all transactions subject to the old scheme are entered in to the system before the change date. On the change date and subsequently, all transactions will be subject to the new scheme. If you subsequently find that a transaction should have been entered prior to the change date, you may have to make manual corrections in preparing your VAT 100 return. It is important that the VAT 100 return immediately after the transition period is thoroughly reviewed, preferably by your advisor, to ensure that the VAT under the new scheme is accurately shown. We suggest that a VAT transaction report under the old scheme is prepared before modifying the scheme. A new VAT transaction report (for the same VAT period) is run immediately after the scheme change. These two reports will assist in the reconciliation process and identifying any necessary manual adjustments. In the particular circumstances of a transition from Cash to Standard scheme, the Open Invoices and Unpaid Bills Reports (Accessed from Reports Accounts Receivable or Accounts payable) can be downloaded as at a specific date into an XLS (Excel) file where the VAT and Gross amounts of the original documents (Invoices, Bills and Credit Notes) and amounts outstanding are given to help in the reconciliation process. Note the PDF report does not show this level of detail. Recording of VAT VAT items are captured at the point of a transaction being entered. Output VAT on sales is entered when a sales invoice is raised, miscellaneous Income or retail taking are posted. In this example a VAT rate of 20.0% has been selected for this sales item. Note that default VAT rates for a particular sales item can be set with the sales item, see Setting up Sales Items user guides. Similarly Input VAT on purchases are recorded when bills, cheques, card transactions, expense claims and electronic payments are entered. The system uses two VAT accounts. The VAT Control Account records all VAT relevant to transactions subject to VAT. The VAT Liability Account holds any amounts owed to or from Revenue and Customs at Page 10 of 35

11 the end of VAT period closure. The system automatically transfers the amounts due to or from Revenue and Customs to the VAT Liability Account during the VAT period closure routine. Recording of VAT Flat rate scheme Create invoices and post retail takings normally and the system will adjust the VAT output tax to the flat rate percentage entered in the business profile. On the input tax side for bills, cards, cheques, electronic payments etc. the system defaults to a VAT rate of Out of Scope, so that no VAT impact on purchases is recorded. Page 11 of 35

12 It is possible, for a particular transaction to overwrite the VAT rate, in which case the relevant VAT impact is recorded. You may use this in the situation where an expensive capital asset is purchased. (Section 3.8 VAT Notice 733) Special Situations Standard and Cash based Schemes a. Cash Scheme and Miscellaneous Deposits The Cash based scheme requires that Output tax be accounted for when the payment is received. Usually a Sales Invoice will represent the VAT document and the process of applying a receipt will place the appropriate VAT amounts in the VAT return (VAT100). Where a user chooses to record a Miscellaneous Deposit directly onto a Sales Ledger account (for say a payment on account from the Customer) and not apply the deposit to a Sales Invoice (perhaps because the Invoice cannot yet be raised) and close the VAT period in this condition; any VAT would not be accounted for and therefore the business is potentially non-compliant. To allow flexibility as well as the ability to comply, a list of all currently unapplied Miscellaneous Deposits that have been posted to Customer Accounts is available from the VAT menu. It is recommended that this list be reviewed prior to accepting a VAT Return, see example below. If a user does not wish to do anything, leave the screen and proceed to close the VAT period, if not, the listing allows a user to define the VAT rate that they would wish to apply to any particular deposit as shown below: - Page 12 of 35

13 When Submit is clicked a reversing VAT Journal is created for each item. It posts a VAT amount computed from the selected VAT code to a sub account of the VAT Control Account - VAT on ACCOUNT (Cash Scheme). The VAT100 and the VAT transactions Reports will record the appropriate VAT and turnover amounts when the return is accepted for filing; also the initial journals are locked because they are included in a closed VAT filing. Note the balance on the VAT on ACCOUNT (Cash Scheme) will normally be zero as the Journals are reversing. When in the next or subsequent VAT periods the Miscellaneous Deposit is finally applied, the VAT will be processed as normally but because there is a reversed amount from the Journal the impact will be an adjusted amount If a different VAT rate is applied to the sales invoice or no further impact. A user may cancel journalising unapplied deposits any time prior to accepting a VAT return, by going back to the unapplied listing, where the VAT codes will by default, be reset to Ignore Item and clicking Submit again. b. Selling goods and services to customers in the EU Provided your EU customer is VAT registered and you have their VAT number and you indicate on the customer maintenance screen that you have validated it (See Customer Maintenance user guide for more information) you are usually able to invoice with a zero rated VAT rate; If not, VAT at the appropriate rate must be charged. A consequence of the Customer VAT number validation is that the system will default to a zero rate, but the user must satisfy themselves that this is appropriate. If you are unsure you are strongly recommended to take professional advice. Sales invoices will have text added for compliance purposes as follows. If the sales item is set as Goods and zero rated then Includes zero rated intra-ec supply is shown. For other zero rated supplies the text is may be subject to reverse charge in the country of receipt. If a VAT rate of exempt is selected then the text is Includes exempt supply. In the case of an invoice to an EU customer designated in Euro (or other non sterling currency) the invoice will display any VAT amount in both sterling and currency. Additionally where a business is using the cash based scheme the VAT will be recorded on the VAT 100 return when the invoice is created, not when payment is received. Part of the reporting procedure to HMRC, requires that a quarterly (or monthly - see note in the Setting up for Recording Vat section above) EC sales list is submitted. Provided you have set up the details of VAT registration number and country of your EU customers, a list can be prepared via the VAT menu. Check to ensure that the country prefix code is set both for the entity (VAT configuration) and the Customer (Customer Maintenance). VAT à VAT EC Sales List (V101) Page 13 of 35

14 Make any adjustments and click Submit to prepare. See VAT Reporting and VAT100 / VAT101 (ECSL) returns section below for more information. The report can be accessed from the VAT menu VAT à Reports à View Saved EC Sales List Returns c. Selling goods to other parts of the world (exports) If you export goods to a customer outside the European Union, your supply is normally zero-rated, provided certain conditions are met. If you are uncertain consult with your advisor. d. Buying goods from EU suppliers If you are VAT registered in the UK and receive goods (known as acquisitions) from another EU member state supplied from a VAT registered business in that state, you must account for VAT in the UK on acquisition of the goods as output tax. In addition and subject to the normal rules for deduction of input tax, the same VAT amount is treated as input tax. The VAT rate applicable will be that which would apply to a UK supply of identical goods. So for example no tax will therefore be due on the acquisition of goods that are currently zero-rated in the UK. To record VAT on an EU Acquisition Enter a purchase transaction and fill out data as required Page 14 of 35

15 Enter in the net amount box the value of the acquisition Select EU Acquisition for the VAT rate. A VAT amount based upon the standard rate will be automatically calculated, if this in not the rate that should apply calculate the correct VAT amount and overwrite with that amount. The system will record both the output and input side impacts. Note that if you are using the cash based scheme, the transaction will be recorded immediately (not when the bill is paid) consistent with Para. 4.3 of the notice 731 Cash Accounting. e. Buying goods from other parts of the world (imports) If you import goods from outside the EU, they must be cleared through Revenue and Customs At the point of levying customs duty, Import VAT is charged. The VAT rate applied will be that which would apply to a UK supply of identical goods. Usually you will receive an Invoice from your supplier that will not show any VAT. Your shipper will usually recharge you directly with the appropriate VAT. If however you have arranged with HM Revenue and Customs a deferment, they will collect the Import VAT from you and send a C79 certificate. The C79 authorises you to record the Import VAT. Note that under section 4.3 of VAT Notice 731 (Cash Accounting) the Cash accounting scheme must not be used for imports. To comply with this notice we recommend cash accounting users record these transactions using a cash type transaction such as a cheque, card or online payment to ensure VAT liability is recorded immediately, do not record using a Bill type transaction. You will have to enter the information as two transactions. The first is to record the value of the import. Input the purchase transaction (See note above) and use zero rate VAT code Secondly record the Import VAT recharged from the shipper or the C79 payment Enter the transaction using any appropriate payment transaction, such as cheque, card or online transfer, selecting the account as the VAT Control. This is a potentially complex area and so we strongly advise you consult with your advisor. Page 15 of 35

16 f. Buying and selling services outside of the UK (Reverse Charge) Supply and receipt of services inside the UK are dealt with as described above in recording of VAT. If however you supply or receive services from either EU member states or non-eu member states there are complex rules dealing with where the supply of the service is actually performed. The VAT accounting necessary will be dependant on the type of service it is. We strongly recommend you take advice from HMRC or your advisor. The VAT codes will allow you to account for VAT in the correct manner once the applicable rules have been confirmed. Reverse Charge Procedure Normally, if you are a VAT registered business in the UK and have received a service from a VAT registered supplier in a EU member state, the receiver of the service is the person who must account, to the tax authorities, for any VAT due on the supply. This is known as reverse charge. The system provides a procedure for dealing with this. Another common situation where this can apply is the purchase of say software from the USA. We strongly recommend you take advice from HMRC or your advisor to ensure that this is the correct VAT accounting required. Additionally recent announcements from HMRC suggest that for certain goods (Mobile Phones, Computer Chips, Electronic Storage medium, Hand held computers and GPS systems etc) coming from a European VAT registered supplier must be treated under the Reverse Charge Procedure. Simply follow the procedure described below. The required impact is to add to the VAT control account an amount of output tax (as if a sale) calculated on the full value of the supply received (or in the case of software the value paid), at the same time add (subject to the normal rules for deduction of input tax) the same amount of VAT as input tax to the VAT control account. The impact on VAT is zero; however it does affect the VAT100 return: The system provides a specific feature to deal with any transaction impacted by reverse charge. Enter the transaction normally and select a VAT rate that would apply if the purchase had taken place from a UK supplier. Then in the Analysis Tab simply check the box Reverse Charge VAT in the analysis tab. The appropriate entries are made to the VAT100 report and any VAT transaction reports. Page 16 of 35

17 If the Transaction is subsequently viewed or edited, the displayed VAT rate will show Out of Scope. If you wish to amend the figures make sure you again use a relevant VAT rate and ensure the Reverse Charge VAT box remains checked. We repeat It is strongly recommended you take advice from HMRC or your advisor to ensure that this is the correct VAT accounting required. Special Situations Flat rate and Flat rate cash based turnover method a. Amending the Flat rate effectivity dates / Ending flat rate The dates for which the flat rate scheme applies can be amended in Configure Flat rate(s) VATà Configure Flat rate(s) à Flat Rate Start or End Date The impact of changing the dates is that all open VAT transactions (i.e. not yet included in a VAT return) will amended as appropriate. If before the date change the transaction was not caught as flat rate but now is, it will be adjusted to be flat rate and vice versa. If use of the Flat Rate Scheme is to be terminated an End Date for the last occurrence of a flat rate percentage must be entered before the Flat Rate Box on the configuration screen is unticked. This is usually done at the end of a VAT period. Page 17 of 35

18 b. Change of Flat rate percentage The flat rate percentage can be amended in Configure Flat rate(s) VATà Configure Flat rate(s) à Rate The impact of changing the percentage is that all open VAT transactions (i.e. not yet included in a VAT return) will amend as appropriate. c. Cash Scheme and Miscellaneous Deposits The Cash based scheme requires that Output tax be accounted for when the payment is received. Usually a Sales Invoice will represent the VAT document and the process of applying a receipt will place the appropriate VAT amounts in the VAT return (VAT100). Where a user chooses to record a Miscellaneous Deposit directly onto a Sales Ledger account (for say a payment on account from the Customer) and not apply the deposit to a Sales Invoice (perhaps because the Invoice cannot yet be raised) and close the VAT period in this condition; any VAT would not be accounted for and therefore the business is potentially non-compliant. To allow flexibility as well as the ability to comply, a list of all currently unapplied Miscellaneous Deposits that have been posted to Customer Accounts is available from the VAT menu. It is recommended that this list be reviewed prior to accepting a VAT Return, see example below. If a user does not wish to do anything, leave the screen and proceed to close the VAT period, if not, the listing allows a user to define the VAT rate that they would wish to apply to any particular deposit as shown below: - Page 18 of 35

19 When Submit is clicked a reversing VAT Journal is created for each item. It posts a VAT amount computed from the selected VAT code to a sub account of the VAT Control Account - VAT on ACCOUNT (Cash Scheme). The VAT100 and the VAT transactions Reports will record the appropriate VAT and turnover amounts when the return is accepted for filing; also the initial journals are locked because they are included in a closed VAT filing. Note the balance on the VAT on ACCOUNT (Cash Scheme) will normally be zero as the Journals are reversing. When in the next or subsequent VAT periods the Miscellaneous Deposit is finally applied, the VAT will be processed as normally but because there is a reversed amount from the Journal the impact will be an adjusted amount If a different VAT rate is applied to the sales invoice or no further impact. A user may cancel journalising unapplied deposits any time prior to accepting a VAT return, by going back to the unapplied listing, where the VAT codes will by default, be reset to Ignore Item and clicking Submit again. d. Selling goods and services to customers in the EU Provided your EU customer is VAT registered and you have their VAT number and you indicate on the customer maintenance screen that you have validated it (See Customer Maintenance user guide for more information) you are usually able to invoice with a zero rated VAT rate; If not, VAT at the appropriate rate must be charged. A consequence of the Customer VAT number validation is that the system will default to a zero rate, but the user must satisfy themselves that this is appropriate. If you are unsure you are strongly recommended to take professional advice. Sales invoices will have text added for compliance purposes as follows. If the sales item is set as Goods and zero rated then Includes zero rated intra-ec supply is shown. For other zero rated supplies the text is may be subject to reverse charge in the country of receipt. If a VAT rate of exempt is selected then the text is Includes exempt supply. In the case of an invoice to an EU customer designated in Euro (or other non sterling currency) the invoice will display any VAT amount in both sterling and currency. Additionally where a business is using the flat rate cash based scheme the VAT will be recorded on the VAT 100 return when the invoice is created, not when payment is received. Part of the reporting procedure to HMRC, requires that a quarterly (can be monthly - see note in the Setting up for Recording Vat section above) EC sales list is submitted. Provided you have set up the details of VAT registration number and country of your EU customers, a list can be prepared via the VAT menu. Check to ensure that the country prefix code is set both for the entity (VAT configuration) and the Customer (Customer Maintenance). VAT à VAT EC Sales List (V101) Make any adjustments and click Submit to prepare. Page 19 of 35

20 See VAT Reporting and VAT100 / VAT101 (ECSL) returns section below for more information. The report can be accessed from the VAT menu VAT à Reports à View Saved EC Sales List Returns e. Selling goods to other parts of the world (Exports) If you export goods to a customer outside the European Union, your supply is normally zero-rated, provided certain conditions are met. If you are uncertain consult with your advisor. The flat rate percentage will be applied to the VAT inclusive turnover just as for a UK sale, so even if the supply is zero-rated the percentage will be applied and vat due. It may be that if the business has a higher proportion of this type of sale, the flat rate scheme may not be appropriate. We suggest you consult your advisor. f. Buying goods from EU suppliers If you are VAT registered in the UK and receive goods (known as acquisitions) from another EU member state supplied from a VAT registered business in that state, you must account for VAT in the UK on acquisition of the goods as output tax. Unlike the other VAT schemes however, the flat rate scheme does not allow for the recovery as input tax. (VAT notice 733 Para 12.4) The VAT rate applicable will be that which would apply to a UK supply of identical goods. So no tax will therefore be due on the acquisition of goods that are currently zero-rated in the UK. To record VAT on an EU Acquisition Enter a purchase transaction and select a Date as required Enter the net amount of the value of the acquisition Select EU Acquisition for the VAT rate. A VAT amount based upon the standard rate will be automatically calculated, if this in not the rate that should apply calculate the correct VAT amount and overwrite with that amount. The system will record the output tax side only. g. Buying and selling services outside of the UK (Reverse Charge) Supply and receipt of services inside the UK are dealt with as described above in recording of VAT. If however you supply or receive services from either EU member states or non-eu member states there are complex rules dealing with where the supply of the service is actually performed. The VAT accounting necessary will be dependant on the type of service it is. We strongly recommend you take advice from HMRC or your advisor. The VAT codes will allow you to account for VAT in the correct manner once the applicable rules have been confirmed. Page 20 of 35

21 The Reverse Charge Procedure is not used under the Flat rate scheme. VAT Reporting and VAT100 / VAT101 (ECSL) returns Specific reports are available to help you prepare your VAT return, see below. VAT Online Filing If you have clicked the Use Online VAT Filing box then the VAT100 and EC Sales list can be sent electronically directly from the system via the Government Gateway to HMRC. Please see the VAT Online Filing User Guide for more information. VAT 100 Reports A VAT 100 report format provides the basic information for completing the return to the Revenue and Customs. In most cases there will not be any necessity to make any amendments to the figures. The report is accessed via the VAT menu VAT à VAT Return (VAT 100) A report can be run at any time, but it only after a VAT period end date has passed that the opportunity to accept (and therefore close the VAT period) will be available. After the period end date the report will invite you to Accept the report as the final. The form will be populated with the data that system has available. In most cases this will be correct. However if adjustments are necessary, make them in the second column, a record of the amendment is then retained for when the report is printed out again in the future, for instance at the time of a VAT inspection. Accepting the VAT100 means that the system rolls over to the next VAT accounting period, and all the transactions included in the report are flagged as VAT reconciled. Page 21 of 35

22 Finally the amount of the VAT due to or from Customs for the relevant VAT period is moved from the VAT Control Account to the VAT Liability Account. A copy of the report can be printed and It is possible to reverse the acceptance of the last report (only the last report, prior reports are in a locked condition) via the VAT menu. Page 22 of 35

23 VAT à Reports à View Saved VAT Return Reports à View the VAT100 VAT à Reports à View Saved VAT Return Reports à Delete the Return Deleting a VAT return re-sets the status of everything to the pre-acceptance condition. Other than the VAT 100 Preparation activity (see above), all other VAT reports are available from the VAT à Reports menu. The system defaults to the date range for the current VAT period, if you need a report for other periods or covering multiple periods modify the dates as required and click generate. Page 23 of 35

24 VAT101 (EC Sales List) EC Sales List is required quarterly (or monthly) if chargeable (subject to VAT, usually zero rated) supplies have been made to customers in European Union Countries. Provided you have set up the details of VAT registration number (and indicated that it has been validated on the customer maintenance screen for the relevant customer) and country of your EU customers, a list can be prepared and online filed via the VAT menu. VAT à VAT EC Sales List (V101) Details of the ECSL are presented for review; any necessary amendments to Type may be made. Click Submit to prepare and file the report. A copy of the report can be accessed from the VAT menu VAT à Reports à View Saved EC Sales List Returns VAT Transactions Report This report details all VAT transactions recorded by the system. The system defaults to the end date of the current VAT period and selects Current mode. The report will then display all VAT transactions for the current period: quarter, month or year depending on the configuration. Clicking the Historic Mode box will allow the selection of reports consistent with previous closed VAT periods from the drop down box. Each will report will show those transactions included in a VAT 100 return by the system. Transactions that were corrections (such as a late entry) will appear in the report of the period Page 24 of 35

25 in which they were included in a VAT 100 even though dated in a different VAT period. The All Trading Up To option, which will require the user to enter a valid VAT period end date, is a report that will display all VAT relevant transactions from commencing using the system up to and including the selected date. In effect a history of all entries to the VAT control Account, not necessarily what has been reported on VAT100 returns if the entity is using the cash scheme. pauljt Consulting Ltd -TRIAL VAT Transaction Report For the VAT period ending January 31, 2013 VAT VAT Type Tax Point Reference Name Memo Code Rate VAT Amount Net Amount VAT 100 Outputs Invoice 11/12/ Earth Technology PLC S , /2013 S / /2013 1, /2013 Invoice 21/12/ Venus Management Ltd S , S / / , Total Outputs for VAT period ending 01/2013 7, Inputs Bill 06/12/ Office Products Ltd Laser Printer S (1,700.00) 01/2013 Laser Printer 01/2013 (340.00) Fuel on Account 01/2013 Debit Card 14/12/2012 Central Garages Ltd S (210.00) 01/2013 (42.00) 01/2013 Bill 16/12/ Office Products Ltd ZR (145.00) Bill 21/12/ Phone Company PLC S (245.00) 01/ /2013 (49.00) 01/2013 Debit Card 23/12/2012 The Restaurant Lunch - Andrew White S (56.00) Lunch - Andrew White 01/2013 (11.20) Imputed Non-Recoverable VAT / /2013 Bill 28/12/ Central Garages Ltd S (350.00) 01/2013 (70.00) 01/2013 Credit Note 05/01/ Central Garages Ltd S / /2013 Expense Claim 25/01/2013 Huntrose, Sandra S (141.92) 01/2013 (28.38) 01/2013 Expense Claim 31/01/2013 Jan 13 Huntrose, Richard january 2013 Expenses S (100.00) january 2013 Expenses S (108.33) 01/2013 january 2013 Expenses EX (25.00) 01/2013 january 2013 Expenses 01/2013 (41.67) (552.11) Total Inputs for VAT period ending 01/2013 (2,986.57) Total Outputs 1, , Total Inputs (552.11) (2,986.57) Total VAT Owed/(Due) 1, , /02/2013 Page 1 Page 25 of 35

26 Transactions by VAT Code Report This report is similar is the transaction report, except that transactions are shown under the VAT code used. It is useful for reviewing accuracy of VAT recording and the nature of VAT transactions undertaken by the enterprise, i.e. how much of the business is exempt trading. a. Annual Accounting Scheme If you are using the Annual Accounting Scheme you will have made instalment payments. You will need to enter on the VAT100 any balancing payment amount required to fulfil the actual liability. If you choose to pay your VAT by nine monthly instalments, each payment will be 10 per cent of the total amount of VAT you paid to HMRC in the previous year, or 10 per cent of the estimated total annual Page 26 of 35

27 amount of VAT due to HMRC if you have been registered for VAT for less than 12 months. Your payments will be due by the end of months 4 to 12 of your annual accounting year. If you choose to pay your VAT by three quarterly instalments, each payment will be 25 per cent of your previous year's VAT liability, or 25 per cent of your estimated VAT liability if you have been registered for VAT for less than 12 months. Your payments will be due by the end of months 4, 7 and 10 of your annual accounting year. The balance of your actual VAT payable for your annual accounting year, based upon the VAT Return that you complete at the end of the year, is due two months after the end of your annual accounting year. Annual returns are completed in exactly the same way as quarterly returns, except that after calculating the annual VAT payment due, you deduct the interim payments you have already made to arrive at your end-of-year balancing payment due to you or HMRC. Completing the VAT return and paying any VAT Liability Run the VAT 100 report, VAT transactions reports and EC Sales lists report (if necessary) Satisfy your-self that all information is correct. Transfer the data from the VAT 100 report to your VAT return. Prepare a payment transaction for the liability. Ensure that the account is the VAT Liability Account and the amount to be paid is shown in the Net field. Select Out of Scope as the VAT code. The VAT field must be zero, because the payment of VAT has no impact on the VAT itself. The use of online filing of VAT returns is efficient and saves time, it can also reduce the possibility of errors, and we commend it to you. It is quick and easy to set up, see the Online VAT filing user guide for full details. VAT Refunds If you receive a VAT refund from HMRC use a miscellaneous deposit transaction. See Miscellaneous Deposits user guide. Select the VAT Liability Account as the account. Page 27 of 35

28 Dealing with a VAT Tax Inspection VAT Inspectors may request a visit to inspect your business records, methods and premises. Revenue and Customs make it clear in their documentation that those businesses that send in late or incorrect declarations can expect more frequent visits. In the event of a visit, it is advisable to have all original invoice documents readily to hand as well as bank statements. Prepare reports including VAT transactions and Transactions by VAT code. We advise also to have on hand daily transaction reports for the periods under review; accessed via the Reports menu. Reports à Day Books Sales day Book Purchase Ledger Day Book Bank Receipts Day Book Bank/Credit Card Payments Day Book In addition, reports are available detailing all transactions recorded between any dates. Also reports of all transactions for a particular account or group of accounts can be run. These are available from the Reports menu See Preparing Reports user guide. Specialised VAT Transactions a. Disallowable VAT such as entertainment expenses For certain purchase transactions the VAT is not allowed to be reclaimed as input tax. The most common one is Client Entertainment expenses. In the case of Flat rate schemes there is no impact as no input tax is being recorded in the first place. Dealing with client entertainment expenses The system is pre-set to make the VAT on client entertainment expenses non recoverable Enter the transaction in the normal way including the amount of VAT you have been charged. Enter the VAT as the net amount Save Item, the transaction now shows the gross amount and VAT amount, Submit the transaction. The system will automatically properly deal with the non-recoverable VAT. Page 28 of 35

29 The cost of the VAT disallowed is recorded in the profit and loss report as Non-recoverable VAT. In the VAT control account and the VAT 100 report (and VAT Transaction report) the net value is shown as the value of supplies received but no input VAT is recovered. Dealing with other items that need to be disallowed Enter and Submit a purchase transaction in the normal way. The disallowable amount of VAT will need to be adjusted in the VAT control account. Use a journal entry to do this. The adjustment amount is entered as a Journal Entry, accessed via the Entity Name menu. Entity Name à Journal Entry à Journal Tab The example shows a disallowable amount of 2.00, posted to the VAT control account and charged to the non-recoverable VAT account as an expense. Note that the VAT input (e.g. Expense) button is selected so that the VAT 100 return correctly displays the adjustment. More information on using journal entry transactions can be found in the Using Journal Entry user guide. b. Dealing with Fuel scale charges (fuel provided for company vehicles) If your business provides fuel both for private and business use, and you claim the input tax as a deduction, HMRC require you to use a fuel scale charge to account for some output tax. The scale charge is published periodically by Revenue and Customs. If necessary we suggest using a spread sheet to Page 29 of 35

30 prepare the charge for each VAT Period. Calculate the VAT amount due from the relevant scale and the number of Vehicles. Note that for Flat rate scheme users no adjustment is necessary or allowed because no vat on fuel purchases has been claimed as input tax. Details of the scale charges, which are usually modified at each budget, are available from the HMRC web site. The scales relate to annual, quarterly and monthly VAT accounting periods. The VAT amount is entered as a Journal Entry, accessed via the Entity Name menu. Entity Name à Journal Entry à Journal Tab We suggest that the Memo field holds a relevant comment such as VAT fuel scale charge Ensure that the VAT Output (e.g. Income) button is selected because the impact is to increase the VAT liability to HMRC. Enter the VAT amount as a credit to the VAT control account. Then also as a credit enter the VAT exclusive amount (net) to a expense account (in this example Vehicle fuel and oil), also set the vat rate and the vat amount in the memo fields (this will ensure that the VAT exclusive amount is included in the VAT100 return correctly in box 6 Page 30 of 35

31 Finally enter a debit to the same expense account above ((in this example Vehicle fuel and oil) for the VAT inclusive fuel scale charge. Click Submit to confirm and record. More information on using journal entry transactions can be found in the Using Journal Entry user guide. c. Making a VAT Partial Exemption Adjustment If your business is registered for VAT and makes exempt supplies, an adjustment may be necessary to reduce the amount of input tax that can be recovered. We recommend that you consult with HMRC or your advisor before making any adjustments. To record the exempt input tax, use a journal entry to make the adjustment. Entity Name à Journal Entry à Journal Tab The example shows an adjustment amount of 10,200, posted to the VAT control account and charged to the non-recoverable VAT account as an expense. Note that the VAT input (e.g. Expense) button is selected so that the VAT 100 return correctly displays the adjustment. More information on using journal entry transactions can be found in the Using Journal Entry user guide. Page 31 of 35

32 d. Dealing with Late Invoices Occasionally you may receive a suppliers invoice which should have been included in a prior VAT period. Simply enter the transaction as usual; making sure that it is dated at the tax point date (not today s date). The system will include the figure in the next VAT return. e. Dealing with errors and omissions We recommend that you consult with your advisor when dealing with any error, omission or bad debts issues before submitting your VAT return. Using a Journal Entry directly to the VAT control account can make adjustments. The process is similar to that for making partial exemption adjustments. f. Bad Debts For bad debts, various rules can apply depending on your vat scheme. Standard scheme Provided you have: Already accounted for and paid VAT over to HMRC Written off the debt in your accounts Six months have elapsed from the due date. You can reclaim the VAT already paid. The actual vat recovery can be achieved by clicking the red WRITE-OFF box adjacent to the relevant invoice in the receive payments screen. The system will post the appropriate entries to recover the VAT. Activities à Receive Payments Cash Basis scheme As by definition the debt remains unpaid no VAT has been paid to HMRC and so that there is no VAT to reclaim. Flat rate Scheme Provided you have: Page 32 of 35

33 Already accounted for and paid VAT over to HMRC Written off the debt in your accounts Six months have elapsed from the due date. You can reclaim the VAT already paid. The actual vat recovery can be achieved by clicking the red Write- Of box adjacent to the relevant invoice in the receive payments screen. The system will post the appropriate entries to recover the VAT. Activities à Receive Payment Flat Rate Scheme cash Based Turnover As by definition the debt remains unpaid no VAT has been paid to HMRC and so that there is no VAT to reclaim. g. If you incur VAT on other parts of the EU EU VAT is VAT incurred in an EU member state. If you are registered for VAT and you buy goods and services in another member state you may have to pay VAT there. This need not happen if you buy goods for removal to the UK (an acquisition), but it may apply if what you buy is used there, for example if you take part in an exhibition or trade fair. It is not possible to recover VAT paid in another member state as input tax on your VAT return. You may be able to recover it using a scheme known as Refunds of VAT in the European Community for EC and non-ec businesses. The details are in Revenue and Customs notice 723. We suggest you consult either this notice or your advisor for further advice. However two situations can result, the first is that the VAT is recoverable, and the accounting has to deal with this. The second is that the VAT cannot be recovered (Usually hotel and subsistence expenses are not recoverable). Accounting where the EU VAT is recoverable Select a normal purchase transaction such as Bill/Credit Note or Card Transaction from the Activities menu. Enter the gross amount including the VAT element (in the net field) against the relevant expense account and select EU VAT code. Do not enter any VAT amount in the VAT field; Save Item Add Item for a new line and select EC VAT recoverable account from the Current Assets - Other section of the chart of accounts. Page 33 of 35

34 Note if the account does not exist, see Chart of Accounts user guide about adding a standard account to open the account. Enter the EU VAT amount in the net field, select vat code EU VAT. Do not enter any VAT in the VAT field; Save Item. Add Item for a new line and select Foreign VAT recoverable account from the Other Expenses section of the chart of accounts. Enter the EU VAT amount as a negative item; select EU VAT as the code and no VAT in the VAT field; Save Item. Submit transaction to complete. The profit and loss report will show the full cost (EU VAT included) against the expense account. The amount recoverable is shown as a negative Other Expense. The Balance sheet shows the amount as a Current Asset Other until the cash is received. The VAT 100 report will show the purchase value including the EC VAT in boxes 6 and 9, because the EC VAT is out of scope for UK VAT purposes. When the cash is received from the EU member state, use Miscellaneous deposit to post the cash. Accounting where the EU vat is non recoverable Select a normal purchase transaction, Enter Bill/Credit Note or Enter Card Transaction from the Activities menu. Page 34 of 35

35 Enter the net amount excluding the VAT element (in the net field) against the relevant expense account and select EU VAT code. Do not enter any VAT amount in the VAT field. Add Item for a new line and select Foreign Non-recoverable VAT account from the Other Expenses section of the chart of accounts. Enter the EU VAT amount in the net field, select EU VAT as the code and no vat in the VAT field; Save Item. Note if the account does not exist, see Chart of Accounts user guide about adding a standard account to open the account. Submit transaction to complete. The profit and loss report will show the VAT exclusive cost against the expense account. The amount not recoverable is shown as an Other Expense. The VAT 100 report will show the purchase value including the EU VAT in boxes 6 and 9, because the EC VAT is out of scope for UK VAT purposes. Page 35 of 35