These should be used on transactions outside the scope of VAT. No VAT (0%) – These transactions will not appear on your VAT returns. This covers the basic rules for each VAT code. QuickBooks VAT rates are very customisable so you may not have all of these available – or you may have extra ones. If you are a company for which this applies and you would like to discuss these rates, please contact us. Import/export of goods – Other rates in respect of the import and export of goods do not tend to come up too often for most businesses using Xero. From 1 st April 2022 this returned to the standard rate of 20%. Add the tax component name and enter the VAT percentage and click save. Enter the display name and select a tax type (sales or purchases). Reduced rate of VAT 12.5% – Relevant for hospitality, holiday accommodation and attractions from 1 st October 2021 – 31 st March 2022 you will need to set up a new default VAT rate within Xero. If you incur expenses covered by the domestic reverse charge then you should use the ‘Domestic Reverse Charge 20% (or 5% if relevant) VAT on Expenses’ code. you are in the construction industry), you should use the ‘Domestic Reverse Charge 20% (or 5% if relevant) VAT on income)’ code for sales invoices raised. But either way, please use “Reverse Charge Expenses (20%)”.ĭomestic Reverse charge – If the domestic reverse charge applies to your business (i.e. Receipts or invoices received may have a note on them along the lines of “This supply has been made under the reverse charge scheme”. Instead, you as the customer have to apply the reverse charge rules. For many of these services, the suppliers don’t register for VAT in the UK and so don’t charge VAT. Reverse Charge Expenses (20%) – Some suppliers of services are based outside the UK. If you have been charged VAT on expenditure and it is not directly related to an Exempt supply, use “20%/5% (VAT on Expenses)”. If making a VAT-able supply, use “20%/5% (VAT on Income)”. Most supplies fall under the Standard 20% category but the Reduced VAT rate of 5% is used for the supply of energy in some circumstances (and for certain food sales and for certain construction projects). If an expense was Zero rated or the supplier was not registered for VAT, use “Zero Rated Expense”.Ģ0% & 5% – These are the Standard and Reduced VAT rates that are used in the UK. If your supply is Zero rated, use “Zero Rated Income”. Zero Rated – This is used where the supply of goods is Zero rated, such as children’s clothes, basic foods, books and newspapers. Any expenses directly related to the supply of exempt goods/services need to be marked as “Exempt Expenses” and no VAT claimed, even if there was VAT on the expense. selling an insurance policy), you should be invoicing with “Exempt Income” and no VAT should be charged. Examples are transfers between bank accounts, tax payments to HMRC, drawings/dividends by directors/shareholders.Įxempt – This should only be used where your business makes exempt supplies. This code should be used on transactions outside the scope of VAT. No VAT – These transactions will not appear on your VAT returns. This quick guide should point you in the right direction so that you know which rate to use in which situation: Different accounting software packages treat their VAT codes and rates in different ways.
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