Solution Properties
Solution ID:
222001000101370
Last Modified Date:
Thu Aug 24 09:26:52 UTC 2023
Taxonomy Path:
Case category//How do I...//governmental/legislative compliance
Author:
[email protected]
Understand VAT rates
Description

Learn more about the VAT rates used in Accounting and how to set up defaults to reduce errors.

There are five pre-set VAT rates to choose from. Simply choose the appropriate VAT rate for your transaction.

When the VAT rates change or a new VAT rate is required, we create and maintain the rates for you.

Cause
Resolution

Available VAT rates and when they are used

Depending on what you buy or sell, there are several different VAT rates which might apply.

To keep things simple, we set up and update the VAT rates for you. Simply choose the appropriate VAT rate for your transaction.

The VAT rates we use listed below with a brief description of some the items they apply. This is not a definitive list. Check out the HMRC website for full details of how VAT should be applied.

  • Standard. This is used for most transactions. Currently 20%.

  • Lower rate. This is also called Reduced rate. Currently 5%. Used for some goods and services, such as children’s car seats and home energy.

  • Zero Rated. Currently 0%. Used for certain goods and services such as most food and children’s clothes.

  • Exempt– for transactions exempt from VAT, such as postage stamps, financial and property transactions. The net amount still appears on your VAT Return.

  • No VAT – for transactions not involving VAT. These don’t appear on your VAT Return.

Difference between zero rate and exempt

Zero-rated is for items where the Government charges VAT but the rate is currently set to zero. This includes items such as children’s clothes and footwear, water, basic foods, books and newspapers.

Exempt items are for items where no VAT is paid or charged, but which still need to be recorded on the VAT Return. This includes items such as land, postal services, health services, betting and gaming.

Custom VAT rates

You cannot create your own custom VAT rates.

If you are using a sub-scheme for VAT, where the VAT is calculated differently to the Standard 20%, then you need to:

  1. Select the Standard rate.
  2. Amend the VAT value on the transaction to the correct amount.

How VAT rates appear on the VAT return

This table shows which boxes on the VAT Return are affected by these rates:

VAT rate Sale or purchase Net or VAT Box
Standard Sale Net Box 6
VAT Box 1
Purchase Net Box 7
VAT Box 4
Lower Rate Sale Net Box 6
VAT Box 1
Purchase Net Box 7
VAT Box 4
Zero Rated Sale Net Box 6
VAT N/A
Purchase Net Box 7
VAT N/A
Exempt Sale Net Box 6
VAT N/A
Purchase Net Box 7
VAT N/A
No VAT Non-vatable rate. The transaction doesn’t appear on the VAT Return.

If you purchase goods or services from VAT-registered suppliers in the EU, the following also applies:

  • Reverse charge VAT - The VAT element of purchases of standard or lower-rated services appear in Boxes 1 and 4 and the net in 6 and 7
  • Notional VAT - The VAT element of purchases of standard-rated goods appear in Boxes 2 and 4 and net in 7 and 9

Change the VAT rate on a ledger account

Each ledger account holds a default VAT rate to save you from having to select the correct rate each time you use it. It's simple to change the default.

 NOTE: Changing the default rate won't make any changes to existing transactions. They'll remain with the rates set at the time of their creation. 

  1. Select Settings, then Business Settings, then Chart of Accounts.
  2. Use the search to find the ledger account to change.
  3. Select the required ledger account.
  4. Choose the VAT rate to use from the VAT Rate drop-down.
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Steps to duplicate
Related Solutions

Find out how the VAT Return calculates