Create a new nominal code

If you're using the Sage default nominal ledger structure we suggest you use the following nominal code. If you've already created this nominal code, please proceed to: To create the partial exemption tax codes T6, T13 and T14.

To create a nominal code:

1. Nominal codes > New.
2. Complete the details as follows:

   N/C*	Enter the nominal code number you want to create, for example, 7950.
   Name	Enter the name of the account, for example, Non reclaimed VAT.

   *This information is mandatory.
3. Save > Close.

Create the partial exemption tax codes T6, T13 and T14

The following tax codes and settings are required:

To create a tax code:

1. Settings > Configuration > Tax Codes.
2. Select the required tax code > Edit.
3. Complete the Edit Tax Code window as required > click OK.
4. Apply > Close > No.

Tax codes to use on transactions

You should use the following tax codes when entering income and expenditure transactions under partial exemption.

Income transactions

Enter any income transactions, such as sales invoices or bank receipts, using the following tax codes:

Expenditure transactions

Enter any expenditure transactions, such as purchase invoices or bank payments, using the following tax codes:

If you haven't already created these tax codes, then please refer to the section, To create the partial exemption tax codes T6, T13 and T14.

Calculate the total exempt Input VAT

Calculate the non-related Input VAT (Figure A)

NOTE: To calculate the annual adjustment figure, use the same calculation for the entire tax year, rather than the VAT period. For further information about this please refer to customs.hmrc.gov.uk

1. VAT > VAT Return > Calculate VAT Return > click the figure in Box 4.
2. Calculate the non-related Input VAT as follows:
   
   Non-related Input VAT (Figure A) = T13 Purchase Payments + T13 Purchase On A/C + T13 Payments - T13 Purchase Receipts + T13 Journal Debits
3. Click Close.

Calculate the required percentage (Figure B)

1. Click the figure in Box 6.
2. Calculate the totals for T0, T1, T2 and T5 as follows:
   • T0 total = Sales Receipts + Sales On Account + Receipts - Sales Payments + Journal Credits
   • T1 total = Sales Receipts + Sales On Account + Receipts - Sales Payments + Journal Credits
   • T2 total = Sales Receipts + Sales On Account + Receipts - Sales Payments + Journal Credits
   • T5 total = Sales Receipts + Sales On Account + Receipts - Sales Payments + Journal Credits
3. Using the above totals, calculate the required percentage as follows:
   

   Required percentage (Figure B) =	(T0 + T1 + T5)	x 100
   	(T0 + T1 + T2 + T5)

   If the amount of non-related Input VAT (Figure A) is less than £400,000, round up the required percentage to the next whole number. If Figure A exceeds £400,000, round the figure up to two decimal places.

Calculate the non-recoverable element of the non-related Input VAT (Figure C)

Calculate the non-recoverable element of the non-related Input VAT as follows:

Non-recoverable non-related Input VAT (Figure C) = Figure A - (Figure A x Figure B)

For example, if the non-related Input VAT (Figure A) is £10,000 and the required percentage (Figure B) is 72%, the calculation is as follows:

Non-recoverable non-related Input VAT = 10,000 - (10,000 x 72%) = 10,000 - 7,200 = 2,800

Calculate the Input VAT related to exempt supplies (Figure D)

1. Click the figure in Box 4.
2. Calculate the Input VAT related to exempt supplies as follows:
   
   Input VAT related to exempt supplies (Figure D) = T14 Purchase Payments + T14 Purchase On A/C + T14 Payments - T14 Purchase Receipts + T14 Journal Debits
   
   
3. Click Close.

Calculate the total exempt Input VAT (Figure E)

Calculate the total exempt Input VAT as follows:

Total exempt Input VAT (Figure E) = Non-recoverable non-related Input VAT (Figure C) + Input VAT related to exempt supplies (Figure D)

Check against the De Minimis limit

If your total exempt Input VAT (Figure E) is less than the De Minimis limit, you can reclaim all of your Input VAT.

The De Minimis limit is:

• Not more than £625 per month on average and
• Not more than half of your total Input VAT in the period.

If the total exempt Input VAT for the period is below the De Minimis limit, relief is available and all of your Input VAT is recoverable. If all of your Input VAT is recoverable, please refer to the section, To reclaim all of your Input VAT.

If the total exempt Input VAT for the period is above the De Minimis limit, relief isn't available, which means that only part of your Input VAT is recoverable. If only part of your Input VAT is recoverable, please refer to the section, To reclaim part of your Input VAT later in this article.

Reclaim all of your Input VAT

Recalculate the VAT Return. The figures that appear are the correct values for the VAT Return period.

Once the VAT liability has been agreed, click Reconcile then post the VAT transfer journal as usual.

Reclaim part of your Input VAT

1. VAT > VAT Return > Calculate VAT Return > Make adjustments.
2. In the Box 4 Adjustment column, click the drill button.
3. Complete the VAT Manual Adjustments window as follows:

   Reason	Enter the reason for the adjustment, for example Reduction for Partial Exemption VAT irrecoverable.
   Adjustment	Reduce the value by the amount of the total exempt Input VAT (Figure E). As the box value is to be reduced, prefix the figure with the minus sign.

4. To apply the adjustment and return to the Value Added Tax return window, click Save then click Close.
5. Once the VAT liability has been agreed, click Reconcile then post the VAT transfer journal as usual.
   
   The amounts to transfer are those that appear on the VAT Return before entering any adjustments.
   
   
6. Nominal codes > Journal Entry.
7. Complete the Nominal Ledger Journals window as follows:

   N/C	Name	Details	T/C	Debit	Credit
   2204	Manual Adjustments	Irrecoverable VAT	T9	0.00	Total exempt Input VAT (Figure E)
   7950	Non Reclaimed VAT	Irrecoverable VAT	T9	Total exempt Input VAT (Figure E)	0.00

8. Save > Close.

Post the annual adjustment

1. VAT > VAT Return > Calculate VAT Return > Make adjustments.
2. In the Box 4 Adjustment column, click the drill button.
3. Complete the VAT Manual Adjustments window as follows:

   Reason	Enter the reason for the adjustment, for example Partial Exemption annual adjustment.
   Adjustment	Enter the value that the box should be adjusted by. If you've over claimed VAT, the box value should be reduced and you must prefix the figure with the minus sign.

4. Save > Close.
5. Once the VAT liability has been agreed > Reconcile > post the VAT transfer journal as usual.
   
   The amounts to transfer are those that appear on the VAT Return before entering any adjustments.
   
   
6. Nominal codes > Journal Entry.
7. Complete the Nominal Ledger Journals window as follows.
   • If you've over claimed VAT, post the following journal:

     N/C	Name	Details	T/C	Debit	Credit
     2204	Manual Adjustments	Annual adjustment	T9	0.00	Amount of VAT over claimed
     7950	Non Reclaimed VAT	Annual adjustment	T9	Amount of VAT over claimed	0.00

   • If you've under claimed VAT, post the following journal:

     N/C	Name	Details	T/C	Debit	Credit
     2204	Manual Adjustments	Annual adjustment	T9	Amount of VAT under claimed	0.00
     7950	Non Reclaimed VAT	Annual adjustment	T9	0.00	Amount of VAT under claimed

8. Save > Close.