Solution Properties
Solution ID:
200427112512368
Last Modified Date:
Wed Mar 23 14:27:21 UTC 2022
Taxonomy Path:
Case category//How do I...//governmental/legislative compliance
Author:
[email protected]
Sage 200 - How to account for VAT using the Partial Exemption VAT scheme
Description

Companies should operate under partial exemption if they meet both of the following conditions:

  • They're VAT registered.
  • They purchase goods that include VAT then sell or use these goods to generate income that's classed as VAT Exempt.

You should use this article with VAT Notice 706 - VAT Partial Exemption. If you're using a Special Partial Exemption method, or the Standard Method Override applies, you should contact your local VAT office.

Throughout this article we use various VAT related words or phrases. For a definition of these, please refer to your VAT Guide or your local VAT office.

Input VAT is used to describe VAT on purchases, for example, the VAT element on purchase invoices and bank payments. Output VAT is used to describe VAT on sales, for example, the VAT element on sales invoices and bank receipts.

Cause
Resolution

Create a new nominal code

NOTE:  If you already have a nominal code that you would like to use for this purpose, please proceed to the section, Create the following VAT codes.

The following nominal code is purely for example purposes, ensure you use a nominal code number that fits with you existing nominal structure.

Nominal Code

Name

Management report

Section of report

7950

Non Reclaimed VAT

Profit and Loss

Expense

  • Click Nominal Ledger then Nominal List then New Account.
  • Complete the details as follows:

Code

Enter the nominal code number you want to create, for example, 7950.

Name

Enter the name of the account, for example, Non Reclaimed VAT.

  • Select Report Category then select the Profit and Loss category you require.
  • Click Save then click Close.

You've created the new nominal code.

Create the following VAT codes

The follow VAT codes will need to be created if you have not already got suitable VAT codes in your system.  The code letter are for example purposes only and will need to be replaced with numbers off your choice.

The following VAT codes and settings are required:

Partial exemption VAT codes

Code

Rate

Include in VAT Return

EC Code

AA

20%

Ticked

Not Applicable

BB

20%

Ticked

Not Applicable

CC

20%

Ticked

Not Applicable

  • Click Accounting System Manager then click Settings and click VAT Rates.
  • Click Add then enter the details as required then click OK. For further information about the required VAT codes, please refer to the table above.
Other VAT codes you may need to create

Code

Rate

Include in VAT Return

EC Code

XX

5%

Ticked

Not Applicable

YY

0%

Unticked

Not Applicable

ZZ

0%

Ticked

Not Applicable

You've created your new VAT codes and prepared Sage 200 for partial exemption. You should now process your transactions ensuring that you apply the correct VAT code to each transaction. For further information about this, please refer to the following section.

Which VAT codes to use on transactions

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

0

To enter zero rated transactions.

1

To enter standard rated transactions.

2

To enter transactions that are classed as exempt, but used in the partial exemption calculations.

XX

To enter reduced rate transactions.

YY

To enter transactions on which VAT isn't applicable, for example, bank transfers.

ZZ

For items to be excluded from the calculation whether they're VATable or exempt. For example, the sale of capital goods, incidental real estate or financial transactions and self supplies.

Expenditure transactions

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

0

To enter zero rated purchases.

1

To enter expenditure transactions that include VAT, for goods and services directly relating or attributable to your standard rated income.

XX

To enter reduced rate transactions.

YY

To enter expenditure on which VAT isn't applicable, for example, wages.

BB

For all other expenditure on which VAT is charged, that's expenditure not relating or attributable to either vatable or exempt income.

CC

To enter supplier invoices that include VAT, for goods and services directly relating or attributable to your exempt income.

If you haven't already created these VAT codes, please refer to the previous section.

Calculate the total exempt Input VAT
Calculate the non-related Input VAT (Figure A)

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.

  • Download the custom report created for this process here.
  • Instructions on how to add the report into Sage 200 Standard can be found here.
  • Instructions on how to add the report into Sage 200 Professional can be found here.
  • Run the VAT Partial Exemption report for the VAT period being reconciled.
  • Calculate the non-related Input VAT as follows: 

Non-related Input VAT (Figure A) VAT codes = BB Purchase Invoices - BB Purchase Credits + BB Payments + BB Journal Debits

Calculate the required percentage (Figure B)
  • Calculate the totals for VAT codes 0, 1, 2 and XX as follows:
  • 0 total = Sales Invoices - Sales Credits + Receipts + Journal Credits
  • 1 total = Sales Invoices - Sales Credits + Receipts + Journal Credits
  • 2 total = Sales Invoices - Sales Credits + Receipts + Journal Credits
  • XX total = Sales Invoices - Sales Credits + Receipts + Journal Credits
  • Using the above totals, calculate the required percentage as follows:
Calculate the required percentage (Figure B)
  1. Calculate the totals for VAT codes 0, 1, 2 and XX as follows:
    • 0 total = Sales Invoices - Sales Credits + Receipts + Journal Credits
    • 1 total = Sales Invoices - Sales Credits + Receipts + Journal Credits
    • 2 total = Sales Invoices - Sales Credits + Receipts + Journal Credits
    • XX total = Sales Invoices - Sales Credits + Receipts + Journal Credits
  2. Using the above totals, calculate the required percentage as follows:
    Required percentage (Figure B) =VAT Codes (0 + 1 + XX)x 100
    VAT Codes (0 + 1 + 2 + XX)
    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)
  • Calculate the Input VAT related to exempt supplies as follows: 

Input VAT related to exempt supplies (Figure D) VAT Codes = CC Purchase Invoices - CC Purchase Credits + CC Payments + CC Journal Debits

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)

You've now calculated the total exempt Input VAT. You should now compare this to the De Minimis limit to determine if you can reclaim all of your Input VAT. For further information about this, please refer to the following section.

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, 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, Reclaim part of your Input VAT.

Reclaim all of your Input VAT
  • Click Nominal Ledger then Period End Routines then click VAT Analysis then click Current Period Return. 

The figures that appear are the correct values for the period.

  • Once the VAT liability has been agreed, click Produce VAT Return.

You've now reclaimed all of your Input VAT under partial exemption. Under this scheme, you're also required to make an annual adjustment. For further information about this, please refer to the section, Post the annual adjustment.

Reclaim part of your Input VAT
  • Click Nominal Ledger then Period End Routines then click VAT Analysis then click Current Period Return.
  • Click on the value in Box 4, the click in the Adjustments section.
  • Enter the following Adjustment:

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 value should be reduced and you must prefix the figure with the minus sign.

  • Click Close.
  • Once the VAT liability has been agreed, click Produce VAT Return.
  • Click Nominal Ledger then Nominal List then click the Journal button.
  • Select Single Entry then enter a Journal Title and Journal Date. Complete the Journal Entry window as follows

Code

Name

Narrative

VAT Code

Debit

Credit

2204

Manual Adjustments

Irrecoverable VAT

YY

0.00

Total exempt Input VAT (Figure E)

7950

Non Reclaimed VAT

Irrecoverable VAT

YY

Total exempt Input VAT (Figure E)

0.00

  • Then click Post.

You've written off the non-reclaimable portion of your Input VAT. Under this scheme, you're also required to make an annual adjustment. For further information about this, please refer to the section, Post the annual adjustment.

Post the annual adjustment
  • Click Nominal Ledger then Period End Routines then VAT Analysis and then Current Period Return.
  • Click the value in Box 4 then click into the Adjustments section.
  • Enter the following Adjustment:

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 value should be reduced and you must prefix the figure with the minus sign.

  • Click Close.
  • Once the VAT liability has been agreed, click Produce VAT Return.

    If it turns out that you have over claimed or under claimed VAT please follow the below steps to post a Journal to reflect this:
  • Click Nominal Ledger then Nominal List then Journal.
  • Complete the Journal Entry window as follows:
  • Select Single Entry then enter a Journal title and a Journal date.
  • If you've over claimed VAT, post the following journal:

Code*

Name

Narrative

VAT Code*

Debit

Credit

2204

Manual Adjustments

Annual adjustment

YY

0.00

Amount of VAT over claimed

7950

Non Reclaimed VAT

Annual adjustment

YY

Amount of VAT over claimed

0.00

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

Code*

Name

Narrative

VAT Code*

Debit

Credit

2204

Manual Adjustments

Annual adjustment

YY

Amount of VAT under claimed

0.00

7950

Non Reclaimed VAT

Annual adjustment

YY

0.00

Amount of VAT under claimed

  • *This information is mandatory.
  • Click Post then click Close.
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